Oil Reaches All Time High. Or Not (TM).

Edward Niedermeyer
by Edward Niedermeyer
oil reaches all time high or not tm

At $115.07 a barrel, oil prices appears to have hit an all-time high. But the Economist reports that a Deutsche Bank analyst says chill; that oil is still more affordable than it was in the 1980's. Michael Lewis adjusts oil prices for inflation, by which he proves that pegged to the producer-price index oil is at an all-time high. BUT when you adjust the price for gains in the consumer-price index, oil has to hit the $118/barrel mark to reach a new record. This revelation led Lewis to compare the price of oil to gains in Western consumer's incomes. He found that the annual income of a G7 citizen would have bought 318 barrels of oil in 1981. To match this price (relative to income), oil would have to increase to $134/barrel. What's more, in 1980 American consumers spent some eight percent of their disposable income on energy, compared to 6.6 percent today; a difference that would require oil to climb to $145 to match. By measuring global oil consumption, Lewis also finds that worldwide spending also peaked in 1980 at 5.9 percent, compared to 3.6 percent today. To reach that percentage of global expenditure, oil would have to jump to $150/barrel. In short, gas prices have risen, but global gains in prosperity mean that oil is actually cheaper today than it was at the end of the Carter Administration. Whew!

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  • Phil Ressler Phil Ressler on Apr 23, 2008
    What’s your response to a burning house? Best is to prevent a house from burning in the first place. Next is to extinguish the fire post haste. But what if the house isn't burning at all? Look, I'm not saying energy prices haven't risen. But I am pointing out that people like Krugman are writing about this as though we have no prior relevant experience. In fact, energy prices spiked faster against a backdrop of less robust economies and a state of general economic crisis more than a generation ago. In real terms, energy was less affordable in 1980 than it is today, unemployment in most western countries was much higher, inflation was much higher, money was much more expensive, and confidence was very low. Many people look at the situation today and perceive it as unprecedented (it's not), and harbinger of doom because they don't have sufficient historical context. Pain for people experiencing it is real. But panic among those who aren't in pain will exacerbate underlying problems and generally inhibit orderly application of real remedies. Phil
  • Landcrusher Landcrusher on Apr 23, 2008

    I can't see the URL at all, but I am always suspicious of a statistic that starts in a year like 1992. Why not 1990? Phil is not whitewashing anything. Quite the opposite. Oil is still CHEAP. No one here would do the job for cheaper than the oil companies now do it, and last I checked, Exxon was making 10%. Would you start a company to make 10%? I sure would not, not even if it was a guaranteed 10% on a government contract. Speculators, government officials, and those they favor are the only people making real money on this. Okay, a lot of top level oil execs are making insane money, but that's not limited to oil companies. Which brings up wealth discrepancy. It may be a problem, but I have seen no cure that isn't worse than the disease. Taxation will INCREASE the real disparities. Laws and Regulations will likely hurt the MIDDLE class more than the wealthy. We need a market correction, not a government one. Perhaps we need to get the fund managers to be more responsive to their investors? I don't know.

  • Stein X Leikanger Stein X Leikanger on Apr 23, 2008

    Hmmm, Google has blocked the tinyurl. The graph showed the enormous rise in foreclosures in CA over the past four years - where it had remained fairly stable since 1992 until today. I'm sure the CA real estate statistics can take you all the way back to the SF earthquake if you want, Landcrusher. (Joke intended.) Where foreclosures per annum were at the 100 thousand mark we're now seeing 450 000 per year. Do also bear in mind, if the statistics game is to be played, that US households have fewer dollars on their hands today than they did in 2000; that there's actually been a real drop in disposable income; and that the rate of people's earnings that would go into savings have fallen from 2.3% to 0.7%, due to the predatory lending practises of recent years. We're seeing a lot of factors that are joining to squeeze wage earners. People are moving to shorten their commutes, are downsizing their cars, are lining up at the cheapest gas stations to save a few cents. In other words, it's a very delicate and unstable economy, given to serious jitters. Thanks for the response, Phil. This probably all comes down to the somewhat interesting fact that from the same set of measures, you can have endlessly varying conclusions - just watch the Sunday bloviators on parade for reference. We'll soon find out.

  • Landcrusher Landcrusher on Apr 23, 2008

    Stein, Okay, let's take that one apart. If we are going to have "fun" with stats, then do what you want, but if we are actually discussing the world... I stand by my statement about picking dates. Without a stated reason, and sometimes I even find the reasons suspicious, I am skeptical about date picking in any stat. Just looking at this stat does not tell you much. Your proposed causation is what? 1992 was the beginning of a real estate boom after the whole REIT thing was it not? Lending practices may have gotten more predatory, or they may have just gotten more lax due to the lack of percieved risk. What does this mean to you? All I see is a government caused, rather than prevented bubble. Drop in disposable income measured how? Household income is deceiving since the average household is getting smaller. Incomes have increased on average and median for the most part, every year. Is the average person somehow worse off than they were thiry years ago? Twenty? Ten? Or, is their really just a decrease in perceived wellness? I suspect that the press telling them that they are getting poorer, while the rich get filthy rich is the real culprit, true or not. People who made foolish decisions based on ten dollar oil are now having to correct their mistakes. I believe their worries, while real, are completely out of proportion. Call me when we have tent cities and soup lines, 20 percent unemployment, and other real problems. Then I will agree we are having it tough.