Independent book Study

Michael Rintoul

Blog #1

The book I selected for the independent reading assignment is Why Your World Is About To Get A Whole Lot Smaller, by Jeff Rubin. This book is about world oil supply and the role it will play to end globalization. Rubin begins his book with the phrase, “What do subprime mortgages, Atlantic salmon dinners, SUV’s and globalization all have in common?”...... “They all depend on cheap oil”. In the first few chapters, Rubin displays his knowledge on the subject and he discusses some of his predictions that came to be. For example, during a speech at the Calgary Petroleum Club in 2007, Rubin predicted that oil prices would reach $150.00 per barrel. He was nearly laughed out of the room by the oil executives in attendance. As we know, he was not far off his prediction. In 2008, oil hit the $147.00 mark. Rubin goes on to state that we are consuming oil at a rate, that far exceeds reserves or the amount the Earth can produce. This very basic statement comprises the premise of the book. World economies over the last several decades have been closely tied to the price of oil. Cheap oil provides fuel to an economy and as an economy heats up so does the demand for oil. An increase in demand drives up the barrel price of oil. This in turn drives up the cost of production, transportation, and goods for sale. The effect of this cost increase cools the economy and a recession occurs. During a recession, demand for oil falls and as a result, so does the barrel price. The new availability of cheap oil provides stimulus to an economy and a recovery occurs. This cycle has been repeating itself for decades but according to Rubin, it will not continue. The basic economic law of ”Supply and Demand” dictates that as demand increases so does an item’s cost. As cost increase, so does supply. Rubin claims that as a result of depleting world oil reserves an increase in demand will not be met with an increase in supply. We are heading towards record high oil prices and record low oil inventories. We need to wean our economies off of oil and stop the rollercoaster. The replacement of oil sources will prove great for some economies but a mere disaster for others.