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%.


My commentary:

But, since Brent crude oil prices are now above $100 per barrel (whereas the WTI prices is $86-92 per barrel)...the "true" oil price is probably higher than the $90 oil price discussed in the above article. All it would take to cause a catastrophic oil price spike would be a disruption in the global oil supplies and/or a crash in the economic system (which would result in oil price increases). "Disruptions" include social unrest in oil producing countries, market disruptions (economic crashes), terrorist and pirate attacks (such as in the Gulf region and along oil trade routes), the alarming decay of the world's oil infrastructure, etc. The upheaval in the Middle East and North Africa (including the turmoil in the Gulf region and the Suez Canal, which are all major oil trade routes). One way or another, from the perspective of oil prices it seems that the world may be at the threshold of economic collapse whatever the "true price" of oil actually is.

~TM


Picture

Image: International Energy Agency (IEA)


original article:

2011.02.10
http://www.businessinsider.com/the-world-is-about-to-hit-its-oil-price-recession-threshold-2011-2
 


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    Oil Prices


    In mid-2004, oil prices increased from the range of $20 - $40 per barrel to $60 - $80+ per barrel. The current global economic crisis was triggered in part by the oil price shock starting in 2007 and culminating in the summer of 2008. When prices increased from around $80 per barrel to $141 per barrel by the summer of 2008. The global economy crashed within months in the autumn of 2008. This economic crisis will likely accelerate and become more volatile once oil prices exceed around $85 per barrel for an extended time. Demand destruction for oil may be somewhere above $80 per barrel and below $141 per barrel. Economic recovery (i.e., business as usual) will likely exacerbate the global recession by driving up oil prices.

    Author

    Tariel Mórrígan earned his B.A. in Physics from the University of California at Santa Barbara. He received his Master in Environmental Science and Management (MESM) from the Donald Bren School of Environmental Science and Management at UC Santa Barbara, where he specialized in climate change, conservation, and political economics. Mórrígan is currently the principal research associate of Global Climate Change, Human Security & Democracy (GCCHSD) and a member of its Global Academic Board. His most recent publication is Peak Energy, Climate Change, and the Collapse of Global Civilization: The Current Peak Oil Crisis.

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