PARIS () -- At the end of 2006, we saw the price of crude oil tumble, right across the forward curve. The non-appearance of the hurricane season in the U.S., tied up with the absence of any major geo-political event calmed the markets and opened the way for traders to take their monies off the table. Unsurprisingly they did not miss the opportunity.
After a brief surge around Christmas, crude fell back as the new year opened, but since then we have seen the price gradually inch its way back up hitting $61. This has all happened concurrently with emerging problems in the state of the world economy. The rising strength of the yen has hit the carry trade, the weakness of the dollar and the U.S. deficit unsettles many money managers, throw in the faltering mortgage and house markets in the U.S. and rising personal bankruptcies around the OECD nations and one can see some stormy times ahead.
But as the possibility of economic downtimes emerge, the general logic says that the price of energy should be negatively affected. But it is not. Why?
Demand in the U.S. is approaching record levels. This is despite all the anecdotal and statistical evidence that millions of Americans are really hurting. Mortgage defaults are spiralling, all the general indicators of poverty, such as repossession rates and further evidence such as going without food - in the Pew Foundation report on the U.S. - show that the weakest in the U.S. are experiencing a lot of economic pain.
But perhaps self-evidently in the Anglo-Saxon model of economics these people do not matter anyway, and never did. Firstly they do not consume so much energy, when you have to go without food at some point over the year as around 15% of American citizens claim is the truth, well, you don't bother switching on the microwave.
Instead it has been a bumper decade for the richest. Not having to rely upon tiresome things like working for a living, instead being granted tax cuts, off-shoring opportunities and a plentiful supply of ever cheapening labour to cut their lawns and look after their buck-toothed offspring profitability has never been sweeter. It's never been a better time to be a billionaire.
The pattern is roughly similar around the developed nations. In the U.K. whole areas of the country are set up for the Brit-rich to avoid taxes. Places like Jersey, the Isle of Man and so on. In the City of London $19 billion in bonuses were paid out, distorting internal markets, especially housing now unaffordable for the British young. As for millionaires from poor nations, they can do whatever they like with the money they happen across.
Just take the son of the crook President Obiang of Equatorial Guinea. Somehow he managed to acquire enough money - and as far as Resource Investor knows political posts in EQ are not that well paid - to buy a house in the U.S. for $35 million. Anything to do with the oil?
In other words, consumption for the rich is easy and affordable, rules are for the weak. The U.S. is consuming 21.84 million barrels of oil per day out of a world consumption of around 85 million barrels per day. Poverty of the bottom 25% of Americans, whose incomes have fallen in real terms over the last 20 years, cannot restrain consumption. You do not miss what you never had. That pattern is being repeated around the world. Deregulated capital markets means unregulated consumption.
Temporary crashes, stumbles or corrections in the stock market no longer mean energy consumption will be cut. All it means is that down the chain another slice of the public are whittled off into low energy lifestyles. In order to pass the wealth up the chain to the richest who in turn can consume even more and demand energy intense lives for those who work for them, serve them, as they commute to work, work longer hours. These are the real reasons why energy consumption is not being hit.
