So much unpleasantness for such a short week!
Oil closed around $99 but touched $100 during the day for real this time and if you think our markets took it badly, wait until you see the reaction from the World’s second largest consumer of oil – Japan. Unlike the US, Japan produces virtually no oil (125Kbd) while consuming 5.6Mbd. Last month we discussed the energy policy (or lack thereof) with a neat little chart that shows how oil shifts the global balance of power.
Inflation is already growing fast all across Asia and $100 oil, if it sticks, may be the straw that breaks the back of the global economy. Japan is particularly hard hit tonight as they are back in session for the first time since Dec 28th but only for a half day (at the time I said they shouldn’t bother and now you’ll see why) and the Nikkei was already having trouble holding 15,000 – now they have to come back with the Dow down over 500 points in 5 sessions and $100 oil the cold reality for a country that relies on imports for 98% of its needs.
Even mighty TM is tempering their forecasts for next year as currency pressures and consumer concerns have led to a very cautious sales outlook from Toyota. Interestingly, Toyota’s forecasts are based on weaker hybrid sales on the belief that declining fuel costs will slow demand for them. I’m not sure they have that right as it will take more than a couple of months of $2 gas to get people to buy Hummers again.
OPEC pitched in today, announcing that they have NO plans to raise oil output at their Feb 1st meeting. OPEC is sitting on 3-5Mbd of spare capacity, enough for China to double their usage but China isn’t waiting and is beginning to explore ways to convert their 900Bn ton coal reserves to oil (yeilds apx 2Tn barrels). This is not new technology, Germany ran their army on synthetic gasoline made from coal as early as 1939. The US has 1.6Tn tons of coal, if converted into 3.2Tn barrels of oil, that would be a 438-year supply for the US. The current prodcution cost is $57 per barrel.
It’s hard to be surprised then, that Barack Obama just won the Iowa caucus. Mike Huckabee was the Republican choice and both are running on platforms of no more politics as usual. 38% of the Iowa voters (who are 98% white) voted for Obama and 34% selected Huckabee, who has been telling people he will represent "the man on the street, not Wall Street." Mitt Romney spent $7M on TV ads to Huckabee’s $1.4M and he ran no attack ads, very unlike Romney – who was vicious in his attacks.
Obama is making no bones about wanting to "throw the bums out" of Washington as you can see in this "Take Back America" speech. "On this January night, at this defining moment in history, you have done what the cynics said we couldn’t do," Obama told wildly cheering and chanting supporters this evening. "We are choosing hope over fear, we are choosing unity over division and sending a powerful message that change is coming to America."
We can change this country and, with the right kind of leadership we can accomplish great things quickly. There are 143M cars in this country that use 10Mbd of oil. 16M new cars are sold each year with an average mileage of 20 miles per gallon. The government proposes raising that to 35 mpg by 2020, even though the rest of the planet, including China, already has 35 mpg requirements for new vehicles and the same auto companies that make their cars make our cars.
Simply accelerating that requirement to 35 mpg by 2012 (raising by 3 mpg per year) would knock 120Kbd off US consumption in 2009, 360Kbd in 2010, 720Kbd in 2011, 1.2Mbd in 2012, 1.8Mbd in 2013 and another additional 600Kbd off our consumption each year through 2018, when we will have rolled over the US fleet to higher mileage vehicles. By 2018, the US vehicle fleet would consume 4.8Mbd less than it does now – it’s that simple!
We don’t have to invent anything, we don’t have to come up with wild solutions, we won’t disrupt anyone’s life or tax anyone or offer any rebates or incentives or whatever. We will simply catch up to the rest of the world and cut global oil consumption by 5% with the side effect of significantly reducing greenhouse gas emissions simply by using less gas for each mile driven. This is not a radical plan, all it takes is real leadership to affect great changes…
What we do have to do is vote for these changes – politics as usual just aren’t going to cut it anymore. If the US doesn’t take a leadership position on the energy issue we are sure to be left behind. This is just one of dozens of quick and simple solutions we can use to cut consumption quickly and effectively – the problem is that energy independence doesn’t line a politician’s pockets. As long as we keep voting for the Mitt Romney’s of the world, who outspend their opponents 4 to 1 looking to tear down rather than build, then nothing will change.
The people of Iowa made a big decision today NOT to fall for the same old dirty tricks that gave us our current batch of leaders – let’s hope it’s something we can follow through on during this election season as it’s clearly time for a new direction for our country.
On a ligher political note, here’s a cool Jib Jab video reviewing the year.
