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Oil Shock: Did High Oil Prices Cause the Recession?

    • Wasn’t it the Iraq war that took those 2 million barrels a day off the world market?

    • I agree that oil did push us over the edge. It did not cause the financial crisis, but it did accelerate it. Without the financial crisis, the high oil prices would have brought us into a recession with inflation and/or stagflation, which has happened before in the 70′s and to a lesser extent in the 80′s.

      The scary thought is that we have not learned from this. How soon we all forget that most of the country was paying $4/gal for gasoline and many other parts were paying $5/gal.

      All of this talk of “green” energy does not mean energy independence. The cap and trade and carbon tax does not mean energy independence. These two things correspond to higher energy costs for the average American. “Green energy” and energy independence are two different things. Obama and the democrats are not really focusing on either. They are really only focusing on taxing and making hydrocarbon energy more expensive, which really does not solve anything. Alternative energy will not be attractive unless energy prices go up by 200 to 300%, and the carbon taxes and cap and trade are only projected to increase energy costs by 20-30%.

      We need energy independence. Or heck, it will be painfully obvious in the coming years that we just need energy, period. If we do not ramp up our energy resources, we will be in for some serious energy shocks in the coming years. The summer of 2008 was just a preview and will likely become the norm if we do not increase production of coal, nat gas, and nuclear: the only energy sources that we have. Wind and solar will have to be developed as well, but they will never be a huge part of the energy structure due to unreliability and land mass required. Oh and the cap and trade and carbon tax needs to go. Can you imagine adding 20% to the cost of a gallon of gasoline???? Instead of costing $5/gallon, it would cost $6!

    • I have thought all along that high oil prices were the cause of the economic downturn. The prices were high due to the speculation on Wall Street. I guess all the speculators lost money not only on the oil but also on most of there other investments. It doesn’t matter what it is, Americans are not stupid. When the prices get to high, people will not buy the product,

    • Why do we need energy independence as long as we can buy it cheaper than we can produce it?

      If you are concerned about energy security, then that is a different problem. To solve that problem we need a plan and infrastructure in place that we can turn on when needed, but until then we should continue to buy it elsewhere, as long as it is available and cheaper.

    • “Why do we need energy independence as long as we can buy it cheaper than we can produce it?”

      Because there will not be enough of it to go around. Not to mention that Russia, the Middle East, and South American account for the majority of oil production in the world and each of these areas is already hostile to the US.

      We need energy that is produced in the US. And the only viable options today are coal, nuclear, nat gas and a little bit of oil.

    • Energy Shortage, You discount solar energy mush too quickly. Almost every rooftop in this country is a potential photovoltiac site, has access to the grid, and produces electricity during times of peak demand (i.e., summer from ac loads). This has become a popular option in Germany where tax incentives have fueled the move to solar. For base load electricity, nuclear is our best option and the 2nd generation nuclear movement is set to begin in the US.

    • Rooftop solar panels??? They cost $20,000 to $30,000 for a small house and do not generate enough power to power the house itself let alone other houses.

      As for nuclear, I agree that it is a good option but enviornmentalist are still against it and so is Obama. Not to mention that the fuel we use is a finite resource and will run out eventually.


      That is why youdon’t need or want energy independence AS LONG AS YOU CAN BUY IT CHEAPER. It is a waste of resources to convert prematurely and it is an opportunity cost if you convert too late.

      That is why. for energy security purposes, you do need a plan and maybe partial implementation that will allow you to quickly switch to an energy independent conditions, SHOULD IT BECOME NECESSARY. because of the huge infrastructure requirements quickly switching to an energy independent condition is a relative term: you may need to begin implementation on a slow schedule with a plan to ramp up quickly.

      Right now we have plenty of energy to go around, we just don;t like the typse of energy and its CO2 consequences. If the reason to switch to renewables is to prevent CO2 generation then let’s not make false arguments about energy independence.

      Why confuse the issues? if we switch to renewables because of the cost of CO2, then we get independence as a side benefit, but that isn’t the reason to do it. You would not switch to energy independence as a reason of its own, unless the costs support independence on their own account. We can grow bananas here, too, but we don’t insist on banana independence because it makes no economic sense.

    • Nope, the recession was brought about by the statist liberals failed policy to slay the mythical red-lining dragon. Further, cause was simple, forcing banks into lending money for houses to people who had no prayer of being able to repay.

    • I understand that in some places not being able to repay is the norm. You get a mortgage and expect your grandchildren to pay it off when they inherit.

    • I understand that in some places not being able to pay off is the norm. Youget a mortgage and expect that your grandchildren willpay it off when they inherit. Prices are so high relative to income that very long mortgages ore the norm.

    • Folks let’s keep in mind the following

      • Oil companies PAY the federal and state governments for the privilege of drilling offshore. That’s money going into the tax base that YOU don’t have to pay. The government uses those funds to build schools, roads and hospitals.
      • Offshore drilling creates a huge number of high paying blue collar and white collar jobs. So YOU don’t have to pay for their unemployment benefits and they pay income taxes that eventually benefit you. Those same folks will be spending lots of money and buying lots of homes shore side.
      • Economics 101 indicates that more supply = lower prices for the oil and natural gas that offshore drilling produces.
      • More supply sourced domestically helps to insure that we have a more stable source of supply. This lowers the risk of being “cut off” by others. For the oil and gas market, this then psychologically serves to reduce the price of oil and gas and such will be reflected in how the commodity is priced.
      • Offshore drilling is proven safe and clean. Probably much safer than the oil tankers that cruise in and out of the nations harbors daily.

      So it’s no skin off your nose if the oil companies want to drill for oil. In fact, it benefits you directly and indirectly. It’s time that we get behind this for the good of the nation and the economy.

    • This theory really fails to explain today’s situation as far as I can see it. I thought oil prices spiked as a result of an economic boom fuelled by loose monetary policy, poor regulation and generally excessive behaviour. This allowed for increased speculation, the massive debt build-up and the creation of absurd derivatives. The underlying factors of today’s crisis are the trillions of debt that can’t be served. It seems therefore highly unlikely that high oil prices led to the recession. The only people that will support this theory are those that don’t want to take the blame for having created it – investment bankers, hedgefund managers and those types.

    • You like so many other stupid Americans are confused about 2 issues. Oil prices have minimal effect on gasoline prices as both are traded on commodities markets independent of each other. The commodities market has little to do with supply and demand and much to do with hedge fund managers moving large amounts of capital to take advantage of gasoline future contracts. Limit trading to those who will re-sell the gasoline only and you have solved your supply and demand problem.

    • Hedge fund managers resell the gasoline and oil contracts before they come due.the last thing they want is to take delivery. Contracts are settled daily based on the prices paid by someone who DID take delivery, so trading already effectively has the limits youare talking about. Speculators play an improtant role by providing liquidity in the market: I can go there and sell at todays price or sell at some future price, and when I do that the risk is transferred from me to the speculators.

      If I could only sell my product when a user is ready to accept it, I would get less for my efforts, because fewer people would be bidding to buy from me. If I was a user going into the market to buy product, I would have to buy from only whoever had stuff to sell that day.

      This solves neither the supply and demand problem nor the inefficient market problem. Speculators earn every penny they make by taking risk off of my back as a produce, and by providing liquidity to the market.

    • Last summer, the PBS program NOW, interviewed a family in California that was about to go into foreclosure.
      The reason for going into foreclosure: High gas prices, they could not AFFORD to drive to work.
      Did speculation play a part? Yes it did, it added about $30 to a barrel of oil, so oil would have been $110 rather than $143.
      So why did oil go to $110? PEAK OIL.
      If demand returns we will not be able to pump enough oil out of the ground to meet demand, as Carol writes “Economics 101 indicates that more supply = lower prices…” So less supply = higher prices. The world needs to discover 25-30 billion barrels of oil EVERY year just to replace what we pump out of the ground every year. Lately, world Oil discoveries have been in the low teens to single digits (billions that is).
      Mexico’s, (our 3rd largest supplier of oil) largest oil field, Cantarell, is declining: Luis Ramírez Corzo, head of PEMEX’s exploration and production division, announced on August 12, 2004 that the actual oil output from Cantarell was forecast to decline steeply from 2006 onwards, at a rate of 14% per year. In March 2006 it was reported that Cantarell had already peaked, with a second year of declining production in 2005. In July 2008, daily production rate fell sharply by 36% to 973,668 barrels per day from 1.526 million barrels per day a year earlier
      North Sea oil fields have peaked and are in decline as well and so is Kuwait’s biggest field, the Burgan oil field.
      To learn about PEAK OIL try these sites:

    • Jody you are mostly correct. The world is not running out of oil, it’s running out of CHEAP oil. All the big fields are rapidly declining, and so are Russia, Venezula, and Mexico, which represent a good portion of world production – even Exxon’s production is declinging and they have hundreds of billions at their disposal and they still can’t do it. Additionally there is wide speculation that the Saudi’s are misleading everyone as to their reserves and future production. There is plenty of oil to be found, but it costs so much there needs to be $100-$200 bbl oil to drill for it.

      Unfortunatey Obama and the dems do not support oil, favoring a non-existent “green” energy industry that currently only produces 2% of the country’s energy. If Obama’s policy is to get oil back up to $200 a barrell by having policies and taxes against it, he will succeed. Unfortunately as we saw this past summer, ordinary people can’t afford $100 bbl oil, let alone $200 bbl. If Obama wants to secure our energy needs for the future he is utterly failing.

      The American people are clueless on this matter and are being mislead that alternative energy exists and can be put into production economically. Everybody loves the idea of wind and solar and geothermal, including me. Unfortunately this energy cannot even compete with $200 oil, so no one will be able to afford it, assuming we could even get meaningful production from such in the next 20 years (which is nearly impossible given current technology). You can’t blame the American people, they just don’t know any better and believe what charasmatic Obama tells them. The media is clueless as well and there has not been any substantive reporting on this topic. The only “reporting” has been repeating the rhetoric, with no real world statisics or economic analysis.

      Obama and the democrats are either clueless or blind idealists and they will ruin our country with their ignorance or will. The drop in oil prices is only temporary. Anyone who has been around for more than 10 years knows oil is a boom and bust cycle. Right now is the bust, which means the boom is around the corner. We will be back up to $100 and then on the way to $200 in no time while Obama and the Dems place taxes on oil and other hydrocarbons and do nothing to actually help supply new energy.

      God help us all.

    • it only takes about 90 miles square of solar rooftops to supply the whole USA with infinite and inexhaustible electricity (11% of Nevada desert)… with annual global fossil fuel subsidies of $200 BILLION vs $11 BILLION for renewable energy sourses… maybe its time we leveled the playing field… and help protect our planets natural resources instead of destroying them through excess usage… when the day comes and we run out of energy during peak hours… such as during the daytime… at least our solar panels can keep the lights on… what about nighttime? our wind turbine can keep the lights on during the nighttime… what about calm windless nights? battery technology will supply us with enough “off-peak” power to keep our food refrigerated… or we can simply use our electric car’s battery to power our home during the nighttime… even MIT has recently discovered battery technology based on readily available raw materials… i believe they are cobalt and phopsphate… these types of changes will relieve the power draw on the present coal, natural gas and nuclear power plants…

      technology is the driver for EVERY bull market… OBAMA is the visionary leader of the greatest nation of the free world… he knows we have become too complacent with the status quo(reliance on fossil fuels)… the more nations that desire nuclear technology in the name of “energy production” only allows the ever growing possibility of global thermal nuclear war… talk about WW3 & global “warming”… LOL… no wonder why our reliance on fossil fuels have become a topic of national security… all we need next is nations fighting over natural resources and food… but historically… i guess we’ve always done that over the ages… can you imagine the populations of INDIA and CHINA wanting to follow our lead down the fossil fuel road in light of the indications we are running out of oil and coal?

      how many years did it take for the earth to form those oil fields? or natural gas pockets? or the coal undergoround?

      how long will it take for us to REPLACE those natural resources once they are all USED UP and GONE???

      iMHO… wind is a good transition… planned obsolescence of the moving parts on a wind turbine wont destroy too many jobs… while solar will require the least amount of “maintanence” & be the overall best bet in the long run…

      if you really want the market to rebound the quickest… double the payroll of the SEC… create rules that have “teeth”… and then enforce them and start putting some people in jail… that WILL BRING CONFIDENCE back to the markets… $9 TRILLION of money is sitting on the sidelines & waiting for the SEC… to bring back the uptick rule & it wont cost $700 BILLION!!!

      it costs about $1.2 BILLION for a state of the art 15,000 MT polysilicon plant… versus $5.5 BILLION (conservative estimate) to build a nuclear power plant… (LDK solar is building the worlds largest poly-si plant)… we could build (4) FOUR TIMES the number of poly-si plants alot cheaper then we could build a nuclear power plant… and it takes about 24 months at most to build the poly plants (for the Chinese anyways)… whereas it would take about 10 years to bring a nuclear powerplant online… and the nuclear waste will continue to poison us for thousands of years…

      maybe we should start generating power where it is consumed… starting with solar rooftops… make a grid where we can sell our homes power generation back into the grid… maybe BIG BANKS could use BULK BUYS of solar panels and lease them to homeowners… why cant my utility company pay for my solar panels??? i could “rent” my rooftop to the utility companies and not have to worry about encroaching on the desert fox’s environment… and give me extra brownie points if i allow a rooftop overhang to increase my small roof’s area… the same way they do over in Germany…

      just some ideas from an endangered spotted “owl”


    • W hy did it take the idiots so long to figure this out . I figured it out two years before it happened DA DA.

    • Because the idiots do not want to see the unpleasant truth. It’s easier to blame speculators or China rather than to admit that we have foolishly consumed the easily accessible oil and the following generations will suffer.

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    • really? Everybody that follows economics and politics knows this!!

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