Peak Oil Passnotes: Stagflation Beckons

This week, in fact this year, has seen the equity markets fall and fall hard. Maybe not plunge back to the range they were in between the years 2002 and 2005, but the volatility and the worries over the economies of the U.S. and UK has taken the edge off current thoughts of growth.

In turn you would expect to see the price of oil tanking. Well, it has fallen, as low as $87 per barrel. But then again one year back it was at $49 per barrel, and no one was really talking about recession. So one can hardly call the figure of $87 a slump.


There are a number of reasons why the price of oil, when falling, may not keep pace with the falls in the OECD economies. Firstly, as we have seen in the run-up of prices since 2003, the major economies are much more efficient in using hydrocarbons than they once were. So if their economies fall, the impact will not be as volatile as it would have been back in the economic and oil price slumps of the 1980s, for example.

Secondly, the U.S. economy has genuinely been transferred into the hands of corporations and the elite who serve them. This has created a real dependency from the public on gasoline – and jet fuel – as thoughts of a public transportation system evaporated. Industry may be more efficient in the way it consumes oil and gas but the general public and transportation have no choice. Gas at $3 per gallon has not dampened consumption in the U.S., and if it stays around that price range it looks unlikely that this set of circumstances will change.

Resource Investor