JBA Perspectives | |
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Greetings!
The price of a barrel of oil matters a great deal to the world at large, and it's important to consider whether prices are fluctuating due to good reasons or bad. In the second half of 2010, the price of crude oil rose steadily for good reasons. Investor confidence grew as indicators of economic activity in the U.S. and Europe put to rest questions over the sustainability of the global recovery. But since the beginning of 2011, crude oil has shot up for a bad reason - the instability in the Middle East & North Africa and the risk of already limited global oil supply capacity diminishing further.
There are a few other factors that tip the oil-pricing scales in one direction or the other. On the plus side, rising energy costs over the past decade have caused households and firms around the world to become more energy efficient. The U.S., for example, consumed 8% less fossil fuel energy in 2009 than it did in 2004. Europe & Japan made similar gains. Another consideration to keep in mind is where we derive our oil. The U.S. sources much of its crude oil and other petroleum imports from our own hemisphere, as the accompanying chart shows. Libya accounts for only 2% of world output. The devastating humanitarian and environmental disaster in Japan will temporarily take pressure off of tightening global oil supplies as the country works to rebuild its shaken economy, but their energy appetite won't be curbed for long. Analysts expect that Japan will dramatically increase their fossil fuel demand to compensate for the shutdown of its nuclear reactors, and to aid in the rebuilding effort. Significant supply disruptions anywhere affect price everywhere. Economic models generally suggest that a $10 bump in the per-barrel price of oil can trim economic growth by 0.1% to 0.2%, so the recent rise is not that worrisome. Although there is no clear-cut answer to the question of what level of oil prices will dampen global growth, most market analysts estimate it to be around $140 or more per barrel. So long as oil prices stabilize at current levels, about $100/barrel, the outlook for ongoing global recovery remains positive.
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Bringing In the Oil | |
Source of U.S. oil imports, December, 2010, in thousands of barrels per day | |
Country |
Crude Oil
Imports |
Total Petroleum Imports | |
Canada |
2,064 |
2,713 | |
Mexico |
1,223 |
1,365 | |
Saudi Arabia |
1,076 |
1,087 | |
Nigeria |
1,024 |
1,070 | |
Venezuela |
825 |
917 | |
Iraq |
336 |
336 | |
Angola |
207 |
319 | |
Brazil |
271 |
295 | |
Algeria |
262 |
N/A | |
Colombia |
220 |
231 | |
Ecuador |
192 |
192 | |
Russia |
158 |
514 | |
Kuwait |
125 |
125 | |
United Kingdom |
124 |
236 | |
Argentina |
85 |
N/A | |
Virgin Islands |
N/A |
191 | |
Source: U.S. Department of Energy |
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At JBA, we have been watching the news relating to the tragedy in Japan and keeping in contact with people who are living there during this time. To all our friends, family, clients, and colleagues affected by the unfolding events in Japan, our thoughts are with you. |
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Johnson Bixby & Associates, LLC
Kimberly S. Baker, CFP® · Heidi M. Johnson Bixby, CFP®
Rebecca Eckert, CFP®, ChFC · Megan Woodard, CFP®, EA
Vancouver: 1610 C Street #201, Vancouver, WA 98663 - 360-695-1795
Longview: 1128 Broadway, Longview, WA 98632 - 360-425-1592
Toll Free: 800-919-9288
Investment advisory and securities offered through KMS Financial Services, Inc.
Nothing contained herein shall constitute an offer to sell or solicitation of an offer to buy any security. Material in this publication is original or from published sources and is believed to be accurate. Readers are cautioned to consult their own tax and investment professionals with regard to their specific situations.
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