I did three things that raised the number:
1) Even though I knew it to be lower I used a mental shorthand of 100 MM bbl/day for world consumption.
A quick glance at our BP Statistical Review of World Energy 2014 gives us a figure of 91.3 million bpd for 2013 with the IEA guess for 2014 at 92.4 MM B/D.
2) I assumed a $70/bbl price for WTI. That hasn't happened yet and while we think it will happen it is possible oil may never again trade that low.
3) I inflated the second order effects of the price decline.
One of the areas these effects are most apparent is foodstuffs where energy is a major input cost, especially in the growing of row crops and then in the transportation of the raw commodity, the transport of any intermediate goods and the cost of moving the final product to your favorite restaurant or grocery store.
Still, I jacked the worldwide number by around $400 Bil.
The combination of these three errors, especially because they all move in the same direction, is on the order of $600-800 billion per year. For now it is probably best to stick with October 16's "Citigroup Sees $1.1 Trillion Stimulus From Oil Plunge".
On the plus side it appears this bit from yesterday's post may be happening:
...After trading down to a better-than-two-year-low $79.44 the front future WTI is now only down 26 cents from today's settle, at $80.74. We're going lower but you may see a bit of a short squeeze this week....WTI December's $81.51 up 51 cents so far.
Then again it may just be an artefact of a slightly stronger dollar.
From FT Alphaville:
Why Saudi Arabia’s best bet may be to increase output
In their latest oil note, Goldman Sachs describe the oil market as having a “dominant firm/competitive fringe” structure, in contrast to say a monopolistic or perfect competition structure.
This is basically the description of an oligopoly, in which a dominant firm (for decades, Saudi Arabia) only differs from a monopolist in one key aspect…See also:
… when deciding on production it must take into account not only the market demand curve (as a monopolist does) but also the reaction of the competitive fringe producers to its production decisions.The structure results from the fact that no single entity is ever likely to be able to service the entire market by itself, meaning full monopoly is not desirable, since the consequences of failing to provide the market with the supply it needs may be even more undesirable than being able to control the market.
As a result, the strongest player never has an incentive to push prices to a level that may encourage new competition in, nor does it have an incentive to allow prices to drop below the break-even levels of competitors. It’s primary incentive instead is to protect as steady a revenue stream it can given its position as the provider of the marginal barrel. And that involves hedging.
Hence the need, as Goldman Sachs notes, to base prices on the strongest player’s marginal cost curve:
From this ‘residual’ demand curve we now calculate the marginal revenue curve and equate it to the dominant firm’s marginal cost (or supply) curve. Equating these two functions is exactly how the monopolist behaves, with the key exception that the monopolist did not have to first account for fringe producers. With the dominant firm’s supply decided, the competitive fringe firms will supply the remaining quantity demanded at the prevailing price level (Pdominant)....MORE
Oil: Goldman Lowers Forecast, Brent and WTI Both Down
