The World Is About To Hit Its Oil Price “Recession Threshold”

Thursday, February 10, 2011
By Paul Martin

Joe Weisenthal
Feb. 10, 2011

In the latest monthly IEA oil report, the agency makes a special comment about oil prices as a percentage of global GDP:

At 4.1%, the 2010 global oil burden, albeit below that of 2008 (5.1%), was already the second highest
following a major recession (the highest was reached in 1980, at 8.0%). Put differently, the oil burden rose
by roughly a quarter in 2010. For the OECD, this was equivalent to roughly 0.8% of its collective GDP.
Moreover, under current assumptions for global GDP, oil price and oil demand, the global oil burden could
rise to 4.7% in 2011, getting close to levels that have coincided in the past with a marked economic
slowdown. Indeed, the combination of higher prices with a fragile economic recovery, emerging inflationary
pressures and instability in the Middle East is not a healthy one. A sensitivity analysis for 2011, on a ceteris
paribus basis (holding GDP and oil demand constant), indicates that, at current prices of around $90/bbl
(WTI), the global oil burden is rapidly approaching the 2008 ‘recession threshold’ – and is already well above
the $70‐80/bbl price range described as ‘preferred’ or ‘ideal’ by some producing countries, which would
entail an oil burden of 3.5‐4.0%.

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