<An update by Chris SkrebowskiThe Oil DrumMinimal Behavioral Adaptations to Oil Shocks>

29 comments on Why Oil Intensity Changed in the US Economy

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Stuart Staniford on October 21, 2005 - 2:45pm Permalink | Subthread | Parent | Comments top
Ok - but what you're saying in effect is the elasticity is effectively doubled.  The same relative price spike corresponds with half the supply saving.  Or to put the same thing another way, the same proportional savings requires twice the price hike.  So far, we agree in general qualitative terms.  Now the question is, do oil shocks come in natural price units, or natural units of supply percentage?  Answer: supply percentage.  Oil shocks typically arise because of a war or revolution in some particular country, and that countries production is the natural size of the oil shock.  Thus Saudia Arabia is a potential 12% oil shock, Iran is a potential 5% oil shock and so on.  So I argue oil shocks will be significantly worse in the future (and the expression of this in price terms is they will cause prices to go higher and cause more economic contraction).
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Joseph Somsel on October 21, 2005 - 4:20pm Permalink | Subthread | Parent | Comments top
Personally, I had thought that the decline in oil consumption for electric generator fuel had a larger impact that what Stuart has shown.  Still, it was significant although a major change for the electric industry.

I likewise agree that offshoring of energy-intensive industries has been a major factor in the domestic energy intensity decline.  Look at aluminum and other electrochemical industries for example.

We can't look at oil alone.  As I've preached here and elsewhere, an even bigger risk is North American peak gas.  Before, if oil increased in price or decreased in availability, we could shift some demand to surplus natural gas, at least for non-transportation uses.  We've seen a lot of that with Northeast home heating, switching from heating oil to natural gas.  Fortunately, we could restore some gas production by opening off-limits areas to exploration and extraction - especially the Rockies.

Today, we have no idle production capacity for gas in reserve and we've max'ed out LNG importation facilities.

Hence our short-run exposure is increased over yesteryear by having NO energy fallback.  Our back is to the wall.

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Bigelow on October 21, 2005 - 4:57pm Permalink | Subthread | Parent | Comments top
Stephen Leeb The Oil Factor maintains the U.S. economy does cope with anything short of a year over year oil price increase of 80% without falling into recession. Greater increases tank the economy.
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