Oil Crises Now And Then
By Dan Ackman
As recently as six months ago, almost no one on Wall Street was forecasting higher oil prices, though there were some outsiders in the so-called Peak Oil crowd who did see much higher prices down the road. Now with oil again trading at over $52 per barrel, the conventional wisdom seems to be that high prices are here for a while.
If prices stay where they are, Americans will spend $330 billion on oil this year. That would be a record in real terms, although, adjusted for inflation, the U.S. oil bill was higher in the early 1980s. Of that $330 billion, $221 billion will be for imported oil, the money funneled overseas. The overall bill projects to be 30% higher than just a few months back (see "America's Quarter-Trillion-Dollar Oil Bill").
Bills for oil and imported oil are both double the figures paid as recently as 2002. Adjusted for inflation, the total price is still not as high as it was in the peak years of the oil crisis, though it is getting close. Since the early 1980s, however, the U.S. has come to import a much higher percentage of its oil. As a result, even adjusted for inflation, the total cost to Americans for imported oil should be at an all-time high.
In real terms, oil prices were higher in 1981 than they are now. But they had fallen by half by 1986. As the early 1980s prices were caused by OPEC and politics, they eventually fell. Many oil prognosticators today say oil is more likely to stay high as the price is a function of ordinary supply and surging demand, especially in India and China. Indeed, this morning, the International Energy Agency raised its forecast for China's oil demand this year by 100,000 barrels per day to 500,000 barrels.
This surge has led to rises in oil stocks like Exxon Mobil (nyse: XOM - news - people ), BP (nyse: BP - news - people ) and ChevronTexaco (nyse: CVX - news - people ). They have all risen by about 40% in a year. Oil service stocks like Halliburton (nyse: HAL - news - people ), Schlumberger (nyse: SLB - news - people )and Transocean (nyse: RIG - news - people ) are up by 20% to 60%.
But the good news is that, for the U.S., overall economic growth has left the nation spending a much smaller percentage of its income for oil in particular and for energy overall than it did in the oil crisis era. In 1981, the U.S. was spending 13% of gross domestic product on energy, according to the U.S. Energy Information Administration. Energy costs could be around 8% of gross domestic product this year. That's where the U.S. was in the early 1970s.
The share of GDP used to pay for oil is likely to double from 2002 levels. But it's still less than 3%, half the 1981 share. To be sure, much smaller increases have touched off recessions (or have at least been factors) (see: "Is Oil The Third Whammy?"). But the larger economy can probably take the hit better than it could a generation ago.