Links for 2014-08-03

Quick links to a few items I found interesting.

Bill McBride observes:

Right now 2014 is on pace to be the best year for both total and private job growth since 1999.

Others comment on my new paper, The Changing Face of World Oil Markets:

John Kemp: Forecasts For Higher Oil Prices Misjudge The Shale Boom.

Steven Kopits: Hamilton has it right on oil.

Paul Krugman, in responding to Larry Kotlikoff, writes:

Sooner or later, we will have some combination of benefits cuts and/or revenue increases…. But why, exactly, is that something that must be done immediately?

And here’s the abstract from a new paper by Jens Hilscher, Alon Raviv, and Ricardo Reis:

We propose and implement a method that provides quantitative estimates of the extent to which higher- than-expected inflation can lower the real value of outstanding government debt. Looking forward, we derive a formula for the debt burden that relies on detailed information about debt maturity and claimholders, and that uses option prices to construct risk-adjusted probability distributions for inflation at different horizons. The estimates suggest that it is unlikely that inflation will lower the US fiscal burden significantly, and that the effect of higher inflation is modest for plausible counterfactuals. If instead inflation is combined with financial repression that ex post extends the maturity of the debt, then the reduction in value can be significant.

41 thoughts on “Links for 2014-08-03

  1. PeakTrader

    Younger workers will pay more and receive less in Social Security.

    [According to Social Security: “…the average life expectancy at age 65 has increased a modest 5 years (on average) since 1940.”]

    And, they’ll have to work harder to provide the goods & services a huge retired population will demand.

    Other taxes will likely need to rise too.

    1. Nick G

      the average life expectancy at age 65 has increased a modest 5 years

      a huge retired population

      Those two ideas seem to fight each other. Is the increase modest, or huge?

      1. PeakTrader

        It depends what you’re talking about, which is not what I’m talking about.

        The increase in life expectancy at age 65 is modest and the retired population will be huge.

        So, younger workers won’t benefit much, collecting Social Security, from a longer life expectancy..

        Not only will fewer younger workers support a larger retired population, they’ll be poorer too (e.g. from the depression, student loans, and Obamacare).

        1. baffling

          peak, you could cut social security benefits to people today if you wanted to, but i see no politician with the guts to do that right now. it is all cuts to future beneficiaries. for many people, cutting benefits will simply make the children take in their dependent parents in old age. and if those older folks have no kids to help, what do you do with them? this is why social security was developed to begin with. people gripe about how their future benefits will be reduced. true. but you will also most likely need to spend out of pocket to care for retired elderly parents as well, before you yourself retire. there is no free lunch here.

        2. Nick G

          If average life expectancy at age 65 went from 12 years to 17 years, that’s a 42% increase in benefits. That’s not nothing.

          Plus, only about 55% of people 21 year olds in 1935 survived to age 65.
          See Table 1, adjusted from 1940 to 1935.

          Now that figure has risen to roughly 85%.
          figure 5,

          That’s an increase of 55%.

          Combined, that’s a 100% increase in benefits. That’s something.

    1. jonathan

      What did you think of the point about supply limited from Libya, Iraq and Iran? I understand that most of Jim Hamilton’s points about US production.

      1. Steven Kopits

        Iran and Libya are, in theory, one-time outages that could come back in relatively short order if conditions were right. However, Jim makes the case that these “temporary” disruptions reflect deeper societal divisions which turn outages into more or less permanent phenomena. I think he’s persuasive on this point.

        As for Iraq, it hasn’t gone down yet. But if I were ISIS, sure, I’d be looking to take out southern Iraq’s oil production to the extent possible. And it is possible. Lots of exposed pipelines down there.

  2. Nony

    Kind of a cool blog I just found. Guy has opposite politics from me and is a peaker. But also seems kind of cool and mellow and thinks. Like Mason Inman. Basically a good peaker. (OK, OK…I would put Hamilton and Kopits in that class too). 😉

    In particular, he links to an interesting EIA conference with slides and the like. [I am amused by the twist of the worm that has gone from ASPO demanding meetings with EIA to ASPO not being able to put their own meetings together…wonder if that was from “having won the argument” like when TOD shutdown. 😉 ]

    And he’s a Lions fan…so he knows suffering. 😉 Go Skins! [OK, OK, los Chargers are OK…remember dating a girl at La Mirage and walking to the Murph.]

    1. Jeffrey J. Brown

      Ray Long was the assistant executive director of ASPO-USA, and is still involved with the group.

  3. Nony

    I thought the “day of reckoning” slides (on stranded light crude) from Turner, Mason were very interesting. He mentioned as early as 2015/2016 to as late as 2020 (for spreads to get ugly). Technically, we could have an issue in 5 months. 😉 If I stir a spoon in the oil and breath in the fumes can we call that distillate splitting? 😉

    Also, interesting that we’ve been seeing projections of 2.1 MM bpd over next 6 years (reference case). But if we keep having these 1 MMbpd/year increases, we could be there in as little as 2 years. 2014 is looking to be another big year, I think. Bakken is going to have a great summer recovering from that bad winter. Permian is kicking in. Eagle Ford is OK. We’ll probably do a million up, this year.

  4. Nony

    “Tight oil, and particularly responsive tight oil, can disrupt OPEC’s control – an event that could add price volatility”

    Title of one of the IHS slides. Even if you don’t believe it or like it (slightly different things), it’s at least a possibility to consider…

    1. Steven Kopits

      “Tight oil, and particularly responsive tight oil, can disrupt OPEC’s control – an event that could add price volatility”

      It’s not enough. We’re adding 1 mbpd / year of US Lower 48 production right now as it is, and Brent is…$106, and that after a lousy few days for equities. If you could get tight oil additions over 2 mbpd / year, then you’re talking. But at current levels, unlikely. And it looks like we’re about at the high water mark for US shale oil supply growth. Per one of the outlooks I’m using, 2012 was the peak supply growth year for this decade. Brent fell by $3.

      The question, Nony, is this: How does capex compression translate into changes in supply? That’s what you want to be looking at.

      1. Nony

        I don’t know what capex compression means.

        Yeah, the 1 mm bpd/year might not be enough if demand continues to rise. Still, OPEC is having an effect. They have some oil they are not showing. There is a cartel effect. It’s just about how to fight them.

        1. Steven Kopits

          OPEC could produce more, and Kuwait and UAE have plans to increase production.

          Capex compression occurs when exploration and production costs are rising faster than oil prices. In such a situation, the operators (Exxon, Shell, etc.) will be forced to reduce the upstream investments. Exxon’s upstream spend is down 22% H1 compared to the same period last year. That’s about $10 billion on an annualized basis. It’s a large sum of money. Figure $3 billion of that would go the Houston oil field services (OFS) community for services, like offshore drilling, and products, like subsea production trees (valves). Shelll’s capex reduction is about the same. So, $6 bn from the Houston OFS suppliers. From just two companies. Not nothin’. That’s capex compression.

      2. [email protected]

        @Steven, in your studies have you also looked at how an increasing focus on climate change affects the oil sector and the revenues for example by significantly stricter emission laws and higher carbon prices?

        1. Steven Kopits

          I haven’t. I tend to operate under the assumption that events in the real economy (ie, supply and demand fundamentals) will tend to trump regulatory impacts, at least in the case of oil.

          1. baffling

            steven, why do you limit it to the case in oil? it is probably true of many sectors. regulatory complaints are probably more of an excuse to cover for poor supply/demand conditions, or poor management, than legitimate constraints on the economy.

          2. Steven Kopits

            Baffs –

            Oil is interesting because:

            – it is the de facto monopoly fuel for transportation
            – transportation seems to be necessary for economic activity and growth
            – the oil supply appears to be limited

            None of these conditions appear to hold for oil and gas, for example

          3. Nick G

            – it is the de facto monopoly fuel for transportation

            Not really. EVs in all of their forms (HEV, PHEV, EREV, pure EV) are better and cheaper.

            We do have a temporary dependence, such that we’re transferring quite a lot of income and wealth to oil exporters (and incurring other costs, such as military costs and pollution damages). That hurts us, and an oil shock would also hurt. But, oil is now inferior for powering most transportation – that needs to be kept firmly in mind.

  5. BananaGuard

    Kemp has done himself little credit in this debate. I don’t say that because he’s wrong in his facts – I don’t know that he is – but rather because of the way he responds to Hamiliton.

    Kemp casts this as a binary debate, between “peakers” and whatever label he reserves for himself. Hamilton’s paper is not a case of circling the wagons around peak oil. Hamilton’s argument has to do with price. Yes, he mentions limits to potential output, but unless Kemp can make the case that potential output is unlimited, I don’t see the assertion of such limits as controversial.

    Hamilton’s approach is to marshal a wide range of facts, while Kemp’s response is to claim Hamliton is a “peaker’ and to saddle him with every argument that a peaker might make. I’ll admit I’m being unfair about the details of Kemp’s response, but I think I have the spirit just about right.

    Observe, Kemp does a word count – 400 words on fracking out of a 4000 word total – to claims Hamilton has not given enough thought to fracking. So, 10% isn’t enough? Fracking is a supply factor, and markets involve both supply and demand. so assuming about half Hamilton’s argument falls to supply, half to demand (I’m not going to count words, because it’s a silly thing to do), then 20% of Hamilton’s words on supply goes to fracking, and that’s not enough to count for serious consideration. Right.

    What we have here is a quality issue. Hamilton wrote seriously, and either got the right answer or he didn’t. Time will tell. Kemp wrote what seems very much a partisan defense of a set of priors. Kemp did himself no favor.

  6. Nony

    I actually think Kemp is fair. It’s going to annoy you, but I do. Hamilton has been associated with the peakers for a while and did not catch onto the shale before or as it arose. He wants to make supply-geology insights (the depletion curves) but then doesn’t analyze some of the new supplies coming on with enough depth or scenarios.

    Also, Kemp has a shrewd point about the baseline. Hamilton can make comparisons to 10 years ago and then still say “I wasn’t wrong” if prices drop $20 or even $40 / bbl. (and of course if they go up, he’ll also “be right”).

    But the futures curve is backwarded and this does not fit a basic Hotelling depletion dynamic. Reflects some picture of things getting better. Of the market thinking oil will get cheaper.

    To me, this is similar to how Robert Rapier wrote an alarmist post last spring about the gas inventory “headed to zero”

    and predicting near term price spiking and long term systemic issues. But then he can still claim he was right, since he never gave specific numbers or amounts. [He actually cited 2 days of 7$ gas in March as validating him, when we were at ~6 when he wrote the piece and when March gas was well under FEB gas. And then this summer’s cheap gas, under $4/MCF now, fits his long term story, since it’s above the 3.50 from the year before. (Not that he explicitly said in his first story…I expect over the very cheap glut prices only). If that outcome was clearly described in his story, most people would say “throw me into that briar patch” and also, why so negative (how does the outcome fit the tone).

    I see this a fair amount with peakers. Wanting to write negative stories, but not getting tied down and tripped up when they don’t come true…thus the low baseline not consistent with rest of remarks. To me, this is not straightforward. I prefer at least Kopits who just says things like “I think the futures market is mispriced”.

    1. James_Hamilton Post author

      Nony: What exactly is a “peaker”? It seems to be an expression you made up in order to denigrate someone without any substantive basis or intellectual foundation.

      In the case of my own views (and I’ve reminded you of this before), you are sitting on an unaltered public archive of all my views on oil markets, recorded continuously and in real time, for the last 10 years. If you believe I made an inaccurate assessment or prediction somewhere over that time frame, you’re free to provide an actual link.

      And let me remind you also that, on every previous case that you’ve bothered to look up the facts, you have discovered that the accusations you so casually lob around were completely without foundation.

      And I still invite you to provide a link to substantiate what I claim is your fraudulent assertion that there are 400 citations to your own research that can be found on

      1. Nony

        I will bet you 200,000 dollars that I have those citations. We can have Phil Parker verify it and take a 10% cut. You up for that? Sheesh. Why are you so worried. I said 400 to show you how TINY I was compared to you. It was not a brag. It was a bold admission of less citations.

        I think you dance when you make comments that you said “analysts said” when you plainly used them to support your view of downplaying the shales. And when your followup was not a clear I WAS WRONG ON SHALE, here’s the new scoop…but a dry report of the new EIA estimate that did not describe how it changed your previous points.

        Oh…and I think it’s funny how you downplayed speculators and OPEC. And then had to update your own white paper in 2008 when the price crashed. And how you basically gave up updating it after OPEC intervened.

      2. Nony

        Um…yeah it’s a derogatory term. Sorry, man.

        In terms of the “find exactly the language I used and critique it like a lawyer” challenge. I guess in one way, it’s fair to challenge me with that. But…it’s also kind of the point that I was making above. That instead of looking at the totality and tone of a piece, if you use a low baseline that you can defend yourself as “not wrong” when price drops. It allows you to escape discussing the backwarded futures thing.

        Give the 400 cites a rest, man. I didn’t even brag about it. (I’m just a civilian, James…not some rival…just an Internet tro…commenter.) I only gave it to just respond to your interrogation with a full monty admission. Could have really just told you none of your business too. It’s true, man. I’m not a liar. I’d swear it on my copy of Brealey and Myers. 😉

        1. James_Hamilton Post author

          No Nony, this is not about trying to “critique like a lawyer”. This is about the fact that, if you ever get around to saying something sufficiently specific that an objective person can verify unambiguously whether it is true or false, your statements have always turned out to be completely false. For example, consider your statement that “I still remember you talking about 200 oil back in 2008. Did you ever face up to that bad prediction?”, or your claim that “The only supply and demand curves, you show are a literal “X” crossed lines. A cartoon.” These statements, and many, many others you have made right here on this forum that I pay for, are unambiguously false, and I proved them to be such.

          Now, you have a choice. You are either someone who asserts with great confidence something which he knows in fact not to be true, or you are someone who asserts with great confidence something about which he has no clue about how utterly misinformed he is, and when confronted with proof that what he has asserted to be fact is indeed utterly false, continues on merrily in a new direction lobbing more hand grenades. Which is it?

          Having been called out on these and multiple other instances of having made false statements, you now revert to vague insinuations about some errors I supposedly have made somewhere, refusing to advance any coherent arguments or facts, but instead only invoking terms like “speculators” or “OPEC” as if there was some substantive analysis somewhere that backs you up in any way.

          1. Nony


            I am a clueless grenade-thrower, not a liar.

            1. I admit I was wrong about the 200.

            2. I don’t admit wrong about the X cartoon. That thing looks like something out of the absolute simplest explanation of just what supply and demand are. AS CONCEPTS. (I just double checked and looked at all the figures. It is your only PQ diagram in that paper.) You don’t show industry supply or demand. P-Q graphs with some specific curvature or with little rectangles (segments).

            For instance:

            3. I’ve been making the “vague” comments about OPEC and backwardation from the beginning. Those are big fundamental RELAVENT concepts that you don’t adequately address. I’m not going to restrict myself to lawyer nits, James. It’s a legit crit and I make it.

            4. I think your comment about ‘I never said it. I said analysts said it’ was lawyerly, James. When Texas crosses 3.4, it will be a big deal and will contradict a viewpoint you’ve been pushing. I mean how does it make the whole list of states with peak shapes look when the biggest state repeaks? [Canada is also a very interesting example, because you can consider how world price affects them…peaking of conventionals but then such a large tranche of unconventional that they go back up to new records…supply curve insight here.] Whether you update the post (doing a new one) to say “I was wrong” or “those analysts I relied on were wrong”, it will still be important to write something. And not a bland “something happened” post like you did about the last EIA update. But a post that explains how this affects your previous writings. And that explores why people (even you…at least by omission) under predicted the shale oil phenomenon.

            5. Think about point 2 and 4 in combination. Not just the need to update old posts. But issue itself. There was a BIG tranche of shale oil available at ~60-100/bbl breakeven. And you didn’t know about it (OK, nor did the analysts). But if you’re going to make general arguments about geology and depletion, you need to have some feel for the segments in the supply curve. How much (and where) comes available at different prices?

          2. James_Hamilton Post author


            (1) I’m astonished that we finally found something we could agree about!

            (2) One can represent a supply or demand curve either with a graph or with an equation. The mathematical analysis of supply and demand in my 2009 Energy Journal paper that you are discussing (though you continue to refer to it as a “white paper”) are in fact fairly sophisticated and detailed. It could only look like a comic book if all you did was look at the pictures without reading any of the text or studying any of the equations, which of course is what you did. The really pathetic thing is that I already pointed your error out to you. I can only conclude that: (a) you in fact never read, and today have still not read, the paper about which you’ve offered numerous criticisms about topics or concepts that are supposedly missing from it, and (b) you are too stupid to recognize you made a mistake, even when it has been explained to you exactly what your mistake was.

            (3) It would only take 30 seconds for anyone to verify that there have been many, many discussions of both OPEC and backwardation in both Econbrowser and my own research. Your blanket charge that there has not been is another of your completely groundless personal attacks. But the bigger point I was making is that neither you, nor anyone you have pointed to, has actually developed a coherent explanation of how either OPEC or speculators could have caused the price of oil to remain today at $100. You simply wave the words “OPEC” and “backwardation” around as though you have some point somewhere. I have a great deal of published analysis on these issues; you have provided no counter.

            (4) No, we’re not talking about “lawyers nits”. The issue is you launched this broad-based personal assault on anyone who did not anticipate the magnitude of the tight oil increase. I responded that in fact pretty much no one anticipated the magnitude of the tight oil increase, provided evidence in support of that claim, and challenged you to provide any evidence to the contrary. You could not. This is directly related to the core substance of your criticism, and has nothing to do with lawyer’s points. I further pointed out that the particular statement of mine that you chose to criticize, which was “I haven’t heard anyone suggest that Texas is ever going to get close again to 1970 levels” was indeed 100% accurate, and it wasn’t because I was listening to the wrong people. I choose words carefully and with thought, and mean exactly what I say. If you say I was wrong about something, you better be prepared to back up your claim. Broad (and frankly slanderous) assertions without any supporting details are an unacceptable way to pretend to have a discussion.

            You have used this forum to lob many dozens of these ill-considered and totally groundless personal criticisms of me and my research. I regret that I simply cannot afford the time to swat down any more of your ill-informed attacks, and am not going to subject our readers to any more of your blather. You’ve just thrown your last five grenades.

  7. Jeffrey J. Brown

    This the scariest Ebola article I have read so far:

    Doctor: Ebola Outbreak Is ‘Spinning Out Of Control’

    ABUJA, Nigeria (CBS Atlanta/AP) — The doctor who treated a man who flew to Nigeria and died of Ebola now has contracted the disease, authorities said Monday, presenting a dire challenge to Africa’s most populous nation as the regional toll for the outbreak grew to 887 dead. . . .

    The second confirmed case in Nigeria is a doctor who treated Patrick Sawyer, the Liberian-American man who died July 25 days after arriving in Nigeria from Liberia, said Nigerian Health Minister Onyebuchi Chukwu.

    Three others who also treated Sawyer now show symptoms of Ebola and their test results are pending, he said. Authorities are trying to trace and quarantine others in Lagos, sub-Saharan Africa’s largest city of 21 million people.

    1. Jeffrey J. Brown

      WHO: Ebola death toll reaches 932; 1,700 cases>

      A Nigerian nurse who treated a man with Ebola is now dead and five others are now sick with one of the world’s most virulent diseases after coming into contact with him, the country’s health minister said Wednesday.

      The growing number of cases in Lagos, a megacity of some 21 million people, comes as authorities acknowledge they did not treat Patrick Sawyer as an Ebola patient and isolate him for the first 24 hours after his arrival in Nigeria last month. Sawyer, a 40-year-old American of Liberian descent with a wife and three young daughters in Minnesota, was traveling on a business flight to Nigeria when he fell ill.

      The death of the unidentified nurse marks the second Ebola death in Nigeria, and is a very worrisome development since it is the Africa’s most populous country and Lagos, where the deaths occurred, one of its biggest cities.

      Meanwhile, Saudi Arabia’s Health Ministry says a man who was being tested for the Ebola virus and has died. The 40-year-old returned on Sunday from Sierra Leone, where there has been an Ebola outbreak, and was then hospitalized in Jiddah after showing symptoms of the viral hemorrhagic fever.

    1. Nick G

      It looks useful, though it has many unrealistic assumptions.

      For instance, he says “From the economist standpoint, global demand for oil is the deciding factor and as long as the demand increases, so will supply. ” Economists don’t generally believe that, and our own Prof. Hamilton is a disproof.

      This is also unrealistic: “The transport sector is particularly vulnerable to shortages, as no viable replacement fuel for oil has yet been found or implemented.”

      Hybrids, PHEVs, EREVs and EVs have lower Total Cost of Operation than Infernal Combustion Engine vehicles. That’s without figuring in the value of reduced pollution and increased national security.

      Oil is dirty, expensive and risky.

      There are cheaper and better replacements for fossil fuel in general, and oil in particular.

  8. Jeffrey J. Brown

    Meanwhile, back in Iraq:

    Most observers seem to be shocked that ISIS had a tactical victory over Kurdish forces in Iraq, given that Kurdish forces were generally considered to be the best fighting force in Iraq. And an interesting message from ISIS:
    ISIS Threatens America: ‘We Will Raise The Flag Of Allah In The White House’

    The terror group President Barack Obama threatened to strike in Iraq Thursday evening is itself threatening to strike the American homeland.

    “I say to America that the Islamic Caliphate has been established,” Abu Mosa, a spokesman for the terror group known as the Islamic State in Iraq and Syria (ISIS), told VICE Media in a video interview posted online Thursday. “Don’t be cowards and attack us with drones. Instead send your soldiers, the ones we humiliated in Iraq.”

    “We will humiliate them everywhere, God willing, and we will raise the flag of Allah in the White House,” he added.

  9. Jeffrey J. Brown

    Ron Patterson has a guest post on his blog, on US oil production:

    My comments:

    Following is a summary of US Crude + Condensate (C+C) and liquids production from 1950 on:

    And a complete annual US C+C data base:

    In 1965, US C+C production was 7.8 mbpd, and we hit 9.6 mbpd in 1970, a rate of change of 4.2%/year. At this rate of increase, we would have been at 11.8 mbpd in 1975, but new production coming on line was not sufficient to offset the declines from existing production, and actual US C+C production was 8.4 mbpd in 1975, a -2.7%/year rate of change.

    Of course, in the late Seventies, the Trans-Alaska pipeline was put in operation (allowing oil companies to begin producing oil from North Slope oil fields, principally Prudhoe Bay), and US C+C production rebounded, increasing from 8.4 mbpd in 1975 to 9.0 mbpd in 1985, a +0.7%/year rate of change. At this rate of increase, we would be up to 9.7 mbpd in 1995 (exceeding the 1970 peak), but new production coming on line was not sufficient to offset the declines from existing production, and actual US C+C production was 6.6 mbpd in 1995, a rate of change of

    So far at least, we saw in absolute annual C+C peak in 1970 at 9.6 mbpd, with a secondary peak in 1985 at 9.0 mbpd.

    I suppose that there are two questions: (1) Will the current peak exceed 1985 secondary peak and (2) If it exceeds the 1985 secondary peak, will we exceed the (so far) 1970 absolute peak of 9.6 mbpd?

    However, unless some laws of physics have repealed, US production will show a peak and decline. And something a lot of people seem not to understand (or choose not to understand) is that at a given decline rate from existing production, the greater the level of production, the greater the volume of oil that we lose each year because of declines from existing wells. In other words, every production increase carries with it the seeds of its own demise.

    1. Nick G


      Have you seen a good discussion of US oil price controls, and how they affected US production in the ’70’s?

      I’m not sure US declines since 1973 are as reliable as an indicator as we might think. Oil prices were capped in the US until 1979, and they declined to a low level in roughly 1985 – only a few years later. It’s true that rising rig counts didn’t reverse the decline, but I’m not sure the domestic oil industry really had a sufficiently long period of high prices to prove the relationship between price and supply. New methods/tech take a little while to arrive.

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