The World Is About To Hit Its Oil Price "Recession Threshold"

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%. 

oil recession

Photo: IEA

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