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!