Interpreting Middle East Economic News and Analyzing Market Trends

Are oil and GDP related? The answer is in the charts

http://gailtheactuary.files.wordpress.com/2012/07/world-oil-supply-growth-compared-to-world-gdp-growth-v2.png

Source: Ourfiniteworld.com

Does the supply of oil affect GDP growth?  The chart above suggests so.  It also suggests that new oil supplies are not coming to the market fast enough to replace declining fields.  We have been blind-sided by news cheering for the rise in US shale oil production.  Headlines have already appeared suggesting the US is on it’s way to become an oil exporter.  Unfortunately, the much talked about shale revolution is an over-hyped story by Wall Street bankers looking to cash in before the game is over.

 

We reported on the US shale revolution in an earlier post here.

  

The reality is that new oil supplies are not offsetting declining supplies.  A good example of this is the decline in North Sea production, which has dropped by more than half in less than 10 years:

  

http://media.economist.com/sites/default/files/imagecache/290-width/images/2013/05/articles/body/20130504_BRC551.png

Source:  The Economist

 

On the positive side, global oil supplies are still increasing, albeit at a declining rate.  Once it turns negative, it will be anyone’s guess as to what happens to global GDP:

http://gailtheactuary.files.wordpress.com/2012/07/world-oil-supply-with-fitted-trend-lines.png

Source: Ourfiniteworld.com

So how is this affecting GDP?  As you can see from the IMF charts below, we are already headed for another slowdown (translation: recession):

http://www.imf.org/external/pubs/ft/weo/2012/update/02/images/fig2.jpg

Source: IMF

 

The hard truth is that all is not well and those who talk about the real issues are shrugged off as the world stares at stock markets hitting record highs.  How could there be a problem when markets are at highs?!