Oil consumption and gas prices above 1973 peak

Calculated Risk takes another look at oil, but posts it at Angry Bear.

Comparing the current oil and gasoline prices to those in the 1970s, he says:

Both the '73 and '79 oil price shocks preceded recessions in the US. After the '79 oil crisis, unemployment peaked at 10.8% in 1982. After the '73 price shock, unemployment only reached 9%. It is not comforting that the real price for gasoline is above the peak of the '73 crisis.

Then he looks at oil consumption:

After peaking in the late '70s, US oil consumption declined for several years... The industrial sector has never returned to the 1979 consumption levels (due to a combination of efficiencies and substitutes) and "other uses" has also declined significantly, primarily because electricity generation has moved away from oil. This leaves motor fuel and "other transportation" as the major growth sectors for oil consumption.

This indicates that any reduction in oil consumption will have to come mainly from transportation...

On oil as a percentage of US GDP:

For $40 oil, consumption will be almost 2.5% of GDP. For $60 oil, consumption will be 3.7% of GDP - substantially higher than during the 1973 oil crisis... At $60 per barrel, imported oil alone will be 2.1% of GDP in 2005.

His conclusion:

In summary, both oil consumption as a % of GDP and real gas prices, will probably be higher in 2005 than after the 1973 gas crisis, but lower than after the 1979 oil shock. Economist's predictions on what price of crude would push the economy into recession have been moving higher... I think a sustained contract price of over $50 (or WTI price close to $60) would probably trigger a consumer recession in the US.

Yesterday, oil prices rose, ending several days of falls. US light crude rose 39 US cents to US$53.71 a barrel; it had hit a record $58.28 last week. London Brent crude rose 20 US cents to US$53.21. US gasoline rose 1.32 US cents to US$1.5498 a gallon.