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Forecasts show global oil output exceeding demand by 630,000 barrels a day for the fourth quarter of 2012. This is partly the result of extra oil supplies coming in from Saudi Arabia to counter the situation with Iran at the same time as oil demand is slowing with the economic slowdown in the U.S., Europe and China. Prices of crude declined to $85.73 a barrel on the Nymex, and $107.85 for Brent crude on the ICE Futures Exchange on Oct. 24, 2012. Goldman Sachs cut the 2013 price forecast for Brent crude to $110 a barrel from $130. Earlier the QE III monetary easing by the U.S. Federal Reserve had rallied oil prices because of a weakening of the dollar.

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Eventually China's stimulus efforts and efforts to build up its reserves of commodities like its Strategic Petroleum Reserve, may not boost demand for oil, iron ore and other commodities enough to offset the recessionary impact on the industrialized economies. And China's demand is large but not that large that it can tilt prices one way or the other. In the first quarter China accounted for 9% of global oil demand, compared with 55% for the largely recession impacted industrialized world. Stockpiling of resources is a temporary factor. Sanford Bernstein estimates the first phase of China's Strategic Petroleum Reserve may have boosted imports by 400,000 barrels a day in March and April. Another factor is consumption. Stimulus dollars pushed fixed asset investment by one third in the first quarter, yet consumer spending went up less than 10%. Consumption will remain weak. Ultimately China's stimulus efforts may act as a brake on sudden falls in commodities prices, and not support continual upward pressure on commodities prices right smack in the face of a deep recession and large underutilization of manufacturing capacity in the industrialized world....

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The first significant action to help homeowners threatened with foreclosure comes from Sheila Bair, Chairman of the Federal Deposit insurance Corporation, one of the few people after Bernanke and Paulson who have shown initiative and foresight in the current crisis. Bernanke and Paulson had the foresight to open the Fed lending window to investment firms like Lehman Brothers and others but little has been done for homeowners to have significant impact. When interviewed on television in the days surrounding the Bear Stearns crisis Sheila has shown a good grasp of the issues and courage to take the initiative. This action is similiar in line to what Martin Feldstein has suggested on the pages of the WSJ for some time now. Martin wanted the Federal government to step in to loan homeowners the 20% of their outstanding loan and work towards bringing the homeowners payment to an affordable sum. According to Feldstein's calculation this would be about the right amount as a percentage of their loan so that homeowners rationally would not be better off walking away from the loan as the best possible decision under the circumstances. If the rational option was taken under a scenario that homeowners would get no direct help here is what would happen even though it may be intuitively read in one's mind. Homeowners would walk away in increasing numbers, it would become the popular option, one that has happened in prior housing crises in Colorado for example but this time it would be spread out across America, making it dangerous. This would launch a downward spiral or cycle in which the more homeowners walk way, or default the more house prices drop, and the more house prices drop a new group of homeowners who previously had enough equity in the house now because of the last price drop enter the category of homeowners who would be better off just walking away as a rational option. During the next wave this gorup would default and set the spiral or cycle moving again to lead to further price declines and another group of homeowners finding not enough equity in their homes to justify making payments and this group would walk away. At each turn of this spiral another cycle would be set in motion which is why it is so dangerous once it gets started, and the need for timely but also well thought out plan and good execution. This cycle is that of the economic system as a whole. As house prices drop at each turn of this cycle, it would have a serious impact on consumption for an already indebted American consumer. A drop in consumption means fewer product purchases by consumers, and the falling demand means factories would close as companies consolidate operations around the remaining factories to keep capacity utilization at reasonable levels, and this would mean layoffs and cuts in investment and other spending. The layoffs in turn would add another layer of homeowners leaving their homes through foreclosures adding to the pool of homeowners who have left their homes, and adding to the downward pressure on house prices. The pickup in inflation would bite at exactly the worst time as this would mean consumers would have to spend even more carefully. The price of oil which normally would respond to changes such as a fleet of cars with higher mileage on American roads would take a longer time to respond as this fleet change would take a few years to occur. It would respond to lower demand for oil in American factories but the considerable demand in Asia and other countries where the economies are likely to slow down but still be growing at rates to accomodate the large number of people who have not benefited from the market economy, would make the price decline in oil a gradual affair. The weaker dollar would add to the price of imports adding to the inflation. This bite from inflation would lower consumption even further in the economic cycle. And this would mean lower production in factories and even more layoffs at the next turn of the economic cycle. The Federal Reserve would find itself having difficult choices between maintaining confidence in the dollar, for which Capman and McKinnon argue on the pages of the WSJ recently and lowering rates but not achieving much in terms of stimulating either consumption or investment as this would take time to work itself out and all the Fed could achieve by its interest rate making tool is to buy time to weather these adjustments in an orderly manner. There is almost a consensus among experts that interest rate reductions in the current climate of inflationary movements in prices and the current currency exchange rates moving towards a loss of confidence in the dollar is something to be done very carefully and each action taken only with careful understanding of the possible consequences. A look at the proposal itsel shows that it gets around the whole issue of moral hazard by having the cost paid for in this manner. The mortgage investors will pay for the 5 years of interest on the 20% of the loan the government provides. The homeowner takes over after that. The mortgage investors cannot add deferred interest, prepayment penalties or other ways to make the homeowner pay some of the interest charges. And the homeowners payment has to be afforadable so mortgage investors have to show that the payment is not more than 35% of income of the homeownercalled the debt to income ratio (DTI). And only homeowners with mortgage payments above 40% DTI are eligible. And the government would raise the money needed through a $50 billion offering. To show there is no moral hazard that is the government bailing out any of the parties involved, the government will get back all of its money or intends to do so, the government will have the first rights to the money should a home foreclose and before anybody else is paid. ...

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A study by the national Petroleum Council which continues to emphasizes the energy constraints as developing countries expand and conservation lags behind in the USA.

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What is behind the runup in oil prices and commodities prices? Gongloff of WSJ sees a decoupling between commodities prices and economic fundamentals. Oil inventories are the highest they have been in a decade, according to information from the Energy Department. And global supplies are high compared to the demand. Two factors are influencing the price of oil which reached $68 on the Nymex crude oil futures- $80 is a realistic prospect. According to one commodity strategist at BMO Capital Markets, China has more than doubled its gold holdings since 2003, and is accumulating bigger inventories of crude, copper, and other materials both for future use and to protect against the potential decline in value of its huge dollar holdings. The other factor is the huge amount of global liquidity as a result of the action of the central banks of the US, Europe, England and other countries. Morgan Stanley Economists Fels and Pradhan say, the ratio of global money supply to GDP has never been higher, which supports a "global liquidity cycle" that puts cash into the hands of investors. These investors bid up the prices of commodities. Fels and Pradhan say similiar cycles propped up the tech-stock and housing bubbles....

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Oil prices are forecast to remain above $100 a barrel in 2012 because of higher social spending in Saudi Arabia, Iran and other countries after the democracy protests, and the threat of retaliation by Iran in the Straits of Hormuz. Iranian threats of retaliation for increased sanctions has embedded a $10-$20 premium in oil prices say some experts.

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As expected Iran boycotts the talks in Doha of 16 major oil producers seeking to stabilize oil prices. Saudi Arabia, Russia, Qatar and Venezuela sought to stabilize oil production at January levels to support oil prices. Wth the Saudia and Russia producing all out, Iran seeks to do the same, effectively closing the door on any agreement to freeze production levels.

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Under a new agreement reached between the new Iraqi government of prime minister Haider al-Abadi and the semi-autonomous region of Kurdistan, Kurdistan will export 250,000 barrels of oil a day in 2015, and the province of Kirkuk will export 300,000 barrels a day. Exports will be made under the Iraq national oil company, SOMO (State Organization for Marketing of Oil). Kurdistan will get 17% of Iraq's budget expenditure, Kurds will sit on the SOMO board, and Kurdish Peshmerga army will get direct monthly payments from Iraq's budget. Earlier in 2014 talks had broken down under the Maliki government- Kurdistan began exports using a pipeline to Turkey and the Iraqi government cut off budget payments to the Kurdistan Regional Government. Iraq's oil minister Abdul-Mehdi said in Vienna after an OPEC meeting in November that Iraq has set a production target of 3.8 million barrels a day for 2015. This is an increase of 500,000 barrels a day compared to production in Oct. 2014.

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The WSJ's Spencer Jakab points out the role of politics- with Saudi Arabia in a standoff with Iran and Russia in Middle Eastern conflicts- and Saudi policy of full output with no cuts unlikely to change, ensuring lower prices for 2016-2017.

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CERA study of 811 oil fields show that depletion rates will be 4.5% worldwide. Schlumberger's estimate is higher at 8%. CERA is on the optimistic side when it sees two Irans making up for one Iran lost. CERA estimates by 2017 33 million barrels a day will be lost from depletion. still it believes production would go up by 59 million barrels a day to 112 barrels a day. How can it say 59 its anoptimistic estimate of new stuff that will come out of the Caspian, Africa, Russia and other places in Asia and upto now unknown places. The reason its hard to estimate depletion is that OPEC and Russia are not sharing the data. CERA's estimate includes also stuff that comes from biofuels and natural gas liquids as half of that 59. As that 59 is 6 times today's Saudi output the estimates are coming under criticism and not widely accepted. IEA estimates demand will go up by 2.3% to 87.8 million barrels a day. But things may change as fuel efficiency becomes a big factor in reducing consumption and as millions of Asians join the world economy from rural areas the impact of more cars may not be as severe with cars that give 60 or so miles per gallon like the Tata Nano and the competitors it creates. And in the west the USA may not be so wasteful as it has been to make up for the increases in Asia of new motorists and industrial uses of energy. Meantime the gains from exploration at today's prices may provide additional output though not by what CERA's overestimate. ...

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Complacency from the Bush Administration reflected in the remarks of Edward Lazear the Chairman of the Council of Economic Advisors in the outgoing Bush administration. He sees no recession in the USA. "I would be very surprised if the NBER looking back at this period would date this as a recession" is what he is quoted as saying to reporters. He went on to say that the $152 billion stimulus of government checks mailed to the people, and Fed interest rate cuts should make the second half of the year a "solid growth period." What this means is that the moves by Congress to help homeowners stave off a new wave of foreclosures through a bill that just passed through Congress on May 7, 2008, is likely to be vetoed by Bush and efforts along the lines suggested by Martin Feldstein, Chairman of Council of Economic Advisors under Reagan, and Sheila Bair at FDIC, to help homeowners avoid foreclosure in her proposal may remain just that as proposals. This situation is likely to be turned over to a new President and make for an election that may revolve around economic issues, as the next wave of foreclosures lead to the start of a declining spiral in home prices leading to further loses in the credit markets and corporate bankruptcies of weaker firms and resulting losses in employment. Rising crude oil prices may result in much of the stimulus being eaten up by paying of some of the debt burden of consumers and rising costs of gasoline at the gas pump. And Feldstein has been very vocal, as have others, about the ineffectiveness of interest rate cuts in the current situation, even doing an oped piece titled "Enough of Interest Rate Cuts." In this sense the current spell of calm in the financial markets may be deceiving, giving Paulson an others in the administration a false sense of hope, and deprive the world economy of some reasonable action to prevent the wave of foreclosures and falling home prices that could set things distinctly downward in the world's largest economy and impacting the rest of the world....

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Different estimates on how quickly and how much additional oil would come into world oil markets if sanctions are lifted. The time estimates range from quickly to 6 months for additional new supplies into world oil markets. Estimates of how much production can be added range from 500,000-800,000 barrels a day from private estimates to 1 million additional barrels a day from Iran's oil company, if sanctions are lifted. UK foreign secretary, Philip Hammond, says "there is still a long way to go if we are going to get there." He told a parliamentary committee that the nonnegotiable part is a window of one year advance notice if Iran were to break out and go for a nuclear weapon, which would be based on technical expert opinion of how long it would take Iran to build a nuclear weapon using its knowhow and materials at that Mr Zanganeh took over as oil minister after the election of Rouhani as president 18 months ago. Zanganeh calls the effect of sanctions and the mismanagement of the previous government as "a catastrophe," and he has tried to instill anew discipline in the oil sector. Iran currently produces about 1-1.2 million barrels a day under sanctions, half of earlier levels before sanctions were tightened in 2012 because of the nuclear weapons development issues....

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Attacks by Houthi rebels in Yemen on Sauid Arabia's Aramco oil company installations are adding to geopolitical tensions. Houthi rebels in Yemen are supported by Iran and are in a war with a Saudi Arabia led coalition. This report says that the three year conflict has reached a point where instead of targeting Riyadh with missiles the Yemeni rebels in Sanaa are now targeting oil installations of Saudi Arabia. The rebels ousted a Said supported government in Sanaa and the the Saudis have failed to oust them from Sanaa, yet the conflict continues. The increase in geopolitical tensions between Iran and Saudis is pushing up oil prices along with the collapse of Venezuela's oil industry and production. Prices reached $75 a barrel in April 2018. Damage from a Yemeni missile hit a Saudi tanker in the Red Sea, a latest sign that the conflict could disrupt oil tanker traffic going towards the Suez Canal.  Trump administration plans to scuttle the Iran nuclear deal or renegotiate it are also increasing tensions. France's Macron favors renegotiating it compared to scuttling the whole deal, a point he made at the U.S. Congress this week, saying also that France will respect the nuclear deal with Iran. Tensions throughout the Middle East are now part of the rival powers Iran and Saudi Arabia and their proxy allies in the region seeking more influence. ...