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June 24, 2008
How long do we have left?
How high can oil go before it drags down the world wide economy? Hummm higher than it is now I guess. Up until 2005, the percentage of world wide GDP taken up by Oil was actually on a steady decline toward below 1% as productivity grew, industries converted to electric, etc. Then the price spike happened, China and India decided to industrialize on the back of oil, and we are now at over 7% of world wide GDP spent on oil. If you include all economic activity around oil (exploration, distribution, etc.) more than 1 out of every 10 dollars in the WORLD are spent on something related to oil. Hummm. What gets cut? When does the weight of this expense make other businesses totally uneconomic. Like pizza delivery, collecting the garbage, flying, etc.?
Kenneth S. Deffeyes says:
How big is the problem? Multiplying production (barrels per year) times the oil price (dollars per barrel) gives a total cost in dollars per year. It's an enormous number; tens of trillions of dollars per year. To put a scale on it, the three thin curves on the graph show the oil cost in contrast to the total world domestic product; the annual value the goods and services added up for all the world's countries. The three curves show the oil cost at one percent, two and a half percent, and five percent of the total world economic output. At $130 this morning, we are at six and a half percent.
Oil production obviously cannot consume 100 percent of the world's income. My intuitive, uninformed guess is that it cannot go above 15 percent. If we see oil at $300 per barrel, we will be looking out over the smoldering ruins of the world's economy. Source
Posted by Martin at June 24, 2008 8:53 PM
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