Goldman Sachs Is Bearish on Oil

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.

Feeling a little bullish about the economy? Settle down! I don’t know if this forecast is new, or if it’s the same one I wrote about last year, but the oil analysts at Goldman Sachs think we’re very close to reaching our maximum oil pumping capacity again after a few years of looseness caused by the recession. Via Jared Bernstein, Goldman’s chart is on the right. So what does it mean when oil demand starts to bump up against supply? This:

High prices, as bad as they are for an economy addicted to cheap oil, aren’t the worst prospect facing us. The real problem is spare capacity….Twenty years ago, OPEC had spare production capacity of about 15 million bpd. A decade ago that had dropped to 5.5 million bpd. [Today], spare capacity has dropped almost to zero.

….In other words, it’s likely that we’re now in a permanent state of near zero spare capacity, which in turn will lead to an increasingly unstable world. As we enter an era in which even Saudi Arabia has no spare capacity to smooth out supply disruptions elsewhere in the world, any blip in supply, whether from political unrest, terrorism, or merely unforeseen natural events, will cause prices to carom wildly. A world with $100 per barrel oil is bad enough, but a world in which a single pipeline meltdown could cause prices to skyrocket to $300 per barrel for a few months and then back down is far worse.

More here. This was all written back in 2005, when $100 oil seemed shockingly high. Today it’s the new normal. What’s worse, though, is that when the global economy expands, we hit our maximum pumping capacity and prices start to oscillate quickly upwards. Result: a global recession, which reduces oil consumption a bit. A few years later, we repeat the process. More on that here.

Plus, as Jared points out, we also have Europe to worry about, as well as persistently low labor force participation at home. 2012 may be a good year compared to 2011, but that’s grading on a curve. Thanks to a combination of really hard problems and really stupid politicians, our recovery is likely to remain sluggish for a long time.

We've never been very good at being conservative.

And usually, that serves us well in doing the ambitious, hard-hitting journalism that you turn to Mother Jones for. But it also means we can't afford to come up short when it comes to scratching together the funds it takes to keep our team firing on all cylinders, and the truth is, we finished our budgeting cycle on June 30 about $100,000 short of our online goal.

This is no time to come up short. It's time to fight like hell, as our namesake would tell us to do, for a democracy where minority rule cannot impose an extreme agenda, where facts matter, and where accountability has a chance at the polls and in the press. If you value our reporting and you can right now, please help us dig out of the $100,000 hole we're starting our new budgeting cycle in with an always-needed and always-appreciated donation today.

payment methods

We've never been very good at being conservative.

And usually, that serves us well in doing the ambitious, hard-hitting journalism that you turn to Mother Jones for. But it also means we can't afford to come up short when it comes to scratching together the funds it takes to keep our team firing on all cylinders, and the truth is, we finished our budgeting cycle on June 30 about $100,000 short of our online goal.

This is no time to come up short. It's time to fight like hell, as our namesake would tell us to do, for a democracy where minority rule cannot impose an extreme agenda, where facts matter, and where accountability has a chance at the polls and in the press. If you value our reporting and you can right now, please help us dig out of the $100,000 hole we're starting our new budgeting cycle in with an always-needed and always-appreciated donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate