Tuesday, May 12, 2009

Another unhelpful fact...

Ethanol proponents have gone to considerable trouble to make sure I know the proper talking points about how ethanol has replaced foreign oil.  OK, let's assume they are truthful - I'm feeling generous.

Then 'splain this to me, Lucy:

OK, that should explain oil in the $30 -$50 range. I expected to see oil bounce between $30 and $50 in a cob-web function as oil settled in on a new equilibrium price.

That analysis worked for a while, but now Oil has broken out to the upside. Why?

Maybe marginal demand is stronger than generally thought.

For years I have watched real oil imports as a measure of US marginal demand for oil and US demand for OPEC oil. Early this year, after several years of stagnation real oil imports surged very strongly. That was a real surprise. With oil demand falling and oil stocks unusually high, why should oil imports surge? It does not make sense to me. [More]
[Update:  I forgot to make my point shown on the graph.  Note the big ramp-up in ethanol production coincides with the right edge of the graph, where imports are taking off again.]

I will concede ethanol replaces oil demand from somewhere, but there NO, as in ZERO, proof it replaces MidEast oil, or improves our national security.  In the first place, since our largest oil supplier is Canada, it may be we are displacing high-cost tar-sand oil.  It could also be replacing high-cost domestic oil as well.

At any rate, as imports continue their surge, the flag-wrapping for ethanol will look more and more transparently manipulative.

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