Oil prices hit record annual level in 2011

Recessions Jan12.pngHigh oil prices are a bad thing for the global economy, and for the chemical industry,

2011 was therefore a very bad year indeed.

Brent oil prices, the global benchmark, averaged $111/bbl in 2011. This is higher even than in 1979 and 1980, after adjusting for inflation.

The chart shows the history since 1970, based on BP’s annual Energy Statistics. The red columns mark official recession periods in the US economy. They show that recession followed every time oil prices sustained a level of $50/bbl or more in $2011 (red line).

Of course, ‘this time may be different’. But in the past, oil costs above 3% of GDP have always led to a recession. 2011 saw them at over 5% – the highest level since the major downturn in the early 1980’s:

• The problem is caused by the drop in consumers’ discretionary income
• They have to buy gasoline, and heat/cool their homes
• So they have less money to spend on everything else
• Initially people buy forward to avoid higher prices
• But then demand falls away, as soon as the oil price stops rising

The ageing of the Western BabyBoomers, who drove the economic Supercycle between 1982-2007, makes it even more difficult for the global economy to sustain this burden.

The New Old generation of those aged 55+ are now 29% of the Western population. It is extremely hard for the economy to grow, when the needs of this major segment of the population are being largely ignored.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.


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