Discourse on the Great Recession – Oil

Discourse on the Great Recession – Oil

For the most part, one can contribute “the lion's share” of the blame for the Great Recession on the collective human mind; in fact, the entire world enterprise is a product of the human mind and its interface with the world environment. What we humans want, we get, supply does wane, prices do go up – oil is no exception. Oil is the single biggest influencer on the human enterprise, without a doubt, where oil goes we follow. There are replacements, just none that come into play quickly enough to offer a liberating degree of fungibility for this item, as George Bush said “we are addicted to it”.  When oil goes up, economic growth wanes, it is a constant in reviewing the modern economy. The good news is that there has been somewhat of a "decoupling" of oil and GDP post the 1979s oil crisis. The move to a more efficient fleet is partly responsible and of course, we have moved to a more “intellectually” based economy – less physical stuff relative to information and services.   

The challenge in the run-up to the Great Recession was in no way related to the presence or absence of oil reserves, but rather, a product of the perception of possible supply constraints due to geo political events – this is evidenced to some degree by the post crisis high price that stabilized much lower absent the speculative fluff that had accumulated in the run-up to the crisis. Oil went parabolic – the economy slumped. One might assert that oil is still harbouring speculative fluff at $100 / barrel given an average world price of less than half that since 1947. Technology is giving access to more and more oil. High oil price is certainly a causal agent for the Great Recession, it is hard to determine where in the harmonic between the physical world and the financial world the genesis for the rise originated. 

Note: In August 2015 this speculation has come true, the price is now half what it was when I wrote this.