MAY
30

An Oil Boom. But No Relief at the Pump.

 
The latest data from the Bureau of Labor Statistics and the Bureau of Economic Analysis reflects what many have already noticed: that despite the intuitive relationship between domestic oil production and gasoline prices, oil spending in various sectors of the economy remains as high as ever, and continues to cripple the economy. There is some good news. Oil spending--as a percentage of GDP, as a percentage of household income, and in absolute terms for households and businesses--hasn’t continued its astronomical rise. Domestic oil production has enabled oil prices to remain effectively flat, despite the massive simultaneous global disruptions in oil output, from Iraq, Iran, Libya, and Nigeria. But the bad news is that as a society, we still spend an astronomical amount of money on oil and petroleum fuels. First, let’s look at GDP. The United States dedicates nearly six percent of GDP to spending on oil and petroleum fuels. Oil spending as percentage of GDP has hovered around this level for decades. The lowest level ever reached was in the mid 1990s, when oil’s share of GDP was below 3 percent, but since the runup in oil prices began in the early 2000s, those days are long gone. The good news is that the economy has become steadily less oil intense over time. Oil intensity is a measure of how many barrels of oil are consumed for every $1,000 of real GDP. Right now, Americans consume about half a barrel of oil for every $1,000 of GDP--a massive amount in a $15.7 trillion economy. As we noted in a previous post, oil demand no longer rises in lock-step with GDP, but growth of the two economic indicators is still correlated. The current oil intensity of the U.S. economy is less than half of what it was in the 1970s, when 1.2 barrels of oil was needed per $1,000 of GDP, but is still twice as high as the United Kingdom and Japan. Oil spending in aggregate terms is also staggering. Households and businesses combined spend nearly 900 billion dollars annually on petroleum. Perhaps most troublingly is the burden of gasoline on American households. The average household spends around four percent of pre-tax income on gasoline (and 5.3 percent of total spending), but the burden is tremendously worse on lower earners. For the lowest earning quintile of the American population, gasoline consumes more than 12 percent of income. Despite all the promise of the oil boom, for most Americans, its economic benefits remain an abstract concept in the absence of relief at the gas station.