Hi
“The global consumption of oil is now about 3% of global GDP”. I cannot find any reference to this particular figure. I would like to fact-check this assertion. My interest is oil shocks. How relevant is oil in economic terms to the world economy? I look forward to your feedback.
davidmich
“The global consumption of oil” is something that is measured in units appropriate to measuring liquids. GDP is something that is measured in monetary units. The price of oil fluctuates on an ongoing basis.
It’s almost certainly because I’m intensely stupid, but I really don’t see how this statement makes much sense. I am not so stupid, though, that I do not know that oil is a linchpin of the global economy.
Well, according to this cite daily oil consumption worldwide seems to be around 90 million barrels. That’s around 33,000 million barrels annually. Oil prices were hovering at around 100 USD in previous years, but more recently, they’re down to around 60 bucks a barrel. That would be an annual production of around 2,000,000 million USD (two trillion dollars a year).
In PPP terms, gross world product was around 87 trillion a couple years ago. That would make oil production about 2% of the total in real terms. (The percentage would be higher if we used nominal exchange rates.) If oil were back at around a hundred bucks a barrel, it would be closer to 3.5% of the total. This is all pretty primitive, there’s more going on than these numbers show (including refining) and everything bounces around, but with that said, your reference seems to be pretty accurate as these things go.
Oil is damn relevant to the world economy. The percentages don’t quite tell the whole story. If it all disappeared in a magical puff of smoke, the damage to the world economy would be far in excess of 3%. We couldn’t repurpose enough of our machines fast enough to avoid a major hit. It’s all interconnected. Everything depends on everything else. But for a standard oil shock – say a war in a major oil-exporting country – it would be an adverse supply shock. Prices would go up. World production would go down. But there’d be other sources of oil out there and we would adapt. Unpleasant but we’ve been through that sort of thing before. Recent advances in drilling mean less dependence on any single source.
This is really the point. At least in the USA, dry cleaning is WAG 0.1% of the economy. And if it all disappeared tomorrow the impact on the rest of the economy would be approximately zero. Not so oil. Or food, to name another product category worth 2-3% of world GDP
Oil (or food) has a pretty inelastic demand curve, especially in the short term. Things like that have outsized leverage. Small changes in price or availability have massively out-sized impacts on the wider economy.
The costs of consumed oil have to be higher than the costs of oil production, since both profit and taxes get added on to the consumer.
I’m not sure how to calculate these, and using a known figure for production costs is a good first approximation. I suspect that the final percentage would still be close to 3%.
A quick Google found little, but this article from the Institute of Energy Research quotes a number.
That energy share includes coal and the article doesn’t say how large that contribution to the total is. And it also uses production prices to measure total expenditures. Which may be the standard measure given the lack of consumer numbers. It’s coincidental but fun to note that $60 per barrel price then happens to work as a price today, seven years later.
The indication is that low single digits is the correct ballpark. Whether 3% is a useful number to cite depends on the context. If it’s to give people (or yourself) an approximate understanding of the role of oil, then it’s fine. If you are doing something more formal, then additional research would be needed.
Thank you all very much. Really helpful.
davidmich