• 2 days PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 3 days Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 3 days Syrian Rebels Relinquish Control Of Major Gas Field
  • 3 days Schlumberger Warns Of Moderating Investment In North America
  • 3 days Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 3 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 3 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 3 days New Video Game Targets Oil Infrastructure
  • 3 days Shell Restarts Bonny Light Exports
  • 3 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 3 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 3 days British Utility Companies Brace For Major Reforms
  • 4 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 4 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 4 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 4 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 4 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 4 days Rosneft Signs $400M Deal With Kurdistan
  • 4 days Kinder Morgan Warns About Trans Mountain Delays
  • 4 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 4 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 5 days Russia, Saudis Team Up To Boost Fracking Tech
  • 5 days Conflicting News Spurs Doubt On Aramco IPO
  • 5 days Exxon Starts Production At New Refinery In Texas
  • 5 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 6 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 6 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 6 days China To Take 5% Of Rosneft’s Output In New Deal
  • 6 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 6 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 6 days VW Fails To Secure Critical Commodity For EVs
  • 6 days Enbridge Pipeline Expansion Finally Approved
  • 6 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 6 days OPEC Oil Deal Compliance Falls To 86%
  • 7 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 7 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 7 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 7 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 7 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 7 days Aramco Says No Plans To Shelve IPO
Alt Text

Goldman Sachs: Inventory Drawdowns Will Not Continue

Goldman Sachs has reported that…

Alt Text

Mass EV Adoption Could Lead To $10 Oil

As the adoption of electric…

How Would the Economy be Affected by $100 Oil?

How Would the Economy be Affected by $100 Oil?

Oil has crossed the $100 threshold a couple times in the last day or so, but there’s still a lot of confusion over what that means. To be sure, predicting the economic consequences of a spike is tough. Nonetheless, a few guidelines are worth keeping in mind.

For the most part, a price increase needs to be sustained to be badly damaging. Cliff Krauss describes a basic rule of thumb in a good article in today’s Times: “As a general rule of thumb, every $10 increase in the price of a barrel of oil reduces the growth of the gross domestic product by half a percentage point within two years.” That sounds roughly right. The U.S. imports about 10 million barrels of oil each day; ten dollars per barrel sustained over two years adds up to about $70 billion. That’s about half a percent of GDP (or about a quarter of a percentage point drag each year). But if a price spike isn’t sustained, it doesn’t add up to as much. If, say, oil hits $100 rather than $80 for a month, the impact (using the same rule of thumb) would be cut by a factor of ten, adding up, perhaps, to a 0.05% hit to growth this year. Even a monthlong spike to $180 would still, by this crude estimate, only slice about 0.2% off annual growth.

Oil price spikes, though, don’t just affect output directly. Historically, monetary policy has been central: if higher oil prices lead to higher inflation, that can prompt rate hikes from the Fed and lead to slower growth. But a spike generally needs to be sustained before it can affect broader prices, and until that happens, it won’t influence policymakers. (The Fed doesn’t include oil prices in the measure of inflation that it watches as it decides rates.) In addition, given the amount of slack still in the economy, it could take a lot to send inflation way up.

There’s one big caveat to all this: There’s decent research that suggests that it’s consumer confidence, not oil prices per se, that affect consumer demand, and hence economic output. By this accounting, even a big oil price spike need not have a huge economic impact, so long as consumers aren’t shaken. Conversely, though, even a superficially modest spike can have big consequences if consumer psychology is deeply affected. This dynamic, rather than any of the other more mechanical ones, may be the most important to watch.

By. Michael Levi




Back to homepage


Leave a comment
  • Anonymous on August 27 2011 said:
    moncler women jacketscheap moncler coatsmoncler men jacketssupra footwear shoesurpa sneakers shoesupra shoes online

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News