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AS Incarnate

8/Feb/2012

From Bloomberg

Crude production in the U.S. is already increasing. Within three years, domestic output could reach 7 million barrels a day, the highest in 20 years, said Andy Lipow, president of Lipow Oil Associates in Houston, a consulting firm. The U.S. produced 5.9 million barrels of crude oil a day in December, while consuming 18.5 million barrels of petroleum products, according to the Energy Department.

North Dakota — the center of the so-called tight-oil transformation — is now the fourth largest oil-producing state, behind Texas, Alaska and California.

The growth in oil and gas output means the U.S. will overtake Russia as the world’s largest energy producer in the next eight years, said Jamie Webster, senior manager for the markets and country strategy group at PFC Energy, a Washington- based consultant.

I’ve been long the dollar for about three months, after learning there was a field equal to about 20% of Saudi Arabia deep under the land along the Ohio/Pennsylvannia border. I have wanted to blog on this but haven’t made the time. Maybe meager posts are the way to go. Anyway, the U.S. is under rather different conditions than the U.K. To spell it out, we have 1. clearly better immigrants  2. A captive upper middle class (only Vancouver can compete with our yuppie utopias, Brits flee to Oz, North America) 3. Oh…and rising oil output.

No 3. might be enough to explain the rising jobs numbers despite slow NGDP growth. Households should eventually adjust to the new 4% per year NGDP growth path (after they pay off their 7% interest loans with 1% yearly pay hikes, when they were implicitly promised 3.5% hikes by the Fed from 1985 to 2007), but you wouldn’t expect to see such a rapid surge in hiring. We will have to see if the recovery continues to gain speed but the key might be shale oil. Ohio, Texas, Montana, Wyoming. There are sites spread throughout the country that need workers, steel, trucks and all sorts of equipment.The problem may be nominal, but the—second best—solution is real.

I’ll dig into the numbers later but the U.S. is clearly at the beginnings of a positive supply shock.  The most hopeful thing about rising oil production is that it will keep a lid on that pesky energy component of the CPI, which talkingheads, Austrians and dishonest antiObama conservatives brought up during the period just after QEII when the recovery gained speed.  The problem with the U.S. recovery has been that, at roughly full world employment, oil is about $140-$200 per barrel, judging from the price we saw mid summer 2008. That means a temporary bout of CPI inflation, and much gnashing of teeth at the petrol station if the economy should recovery quickly. It also means that if the Fed does its job, it will needfully drive up oil prices. Giving this guy ammo. With rising oil supplies, we might just get the sustained CPI weakness needed for enough political cover to print some permanent base money. Plus all that oil is real wealth.

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