Rising oil prices have had significant negative impact on the global economy, according to new economic research. As oil prices approach historical highs, the global economy may suffer from another “price shock,” warns Dr. Minqi Li, associate professor of economics at the University of Utah.
Dr. Li’s regression analyses of world economic growth rate versus change in world oil consumption suggest that the global economy has not, in fact, become less dependent on oil in recent years, contrary to much previous research.
Furthermore, Dr. Li’s models show that world oil supply has become much less responsive to oil price increases. As seen in the graph above, from January 1994 to May 2004, an oil price increase of $0.97 on average brought about an additional influx of one million barrels of oil to the world’s daily supply. From June 2004 to November 2011, however, it took an increase of $11.80 dollars to bring about the same increase in daily oil supply. The observed “world oil supply curve” has dramatically steepened by nearly 12 times. This may have serious ramifications for future global economic growth.
“If world oil production does peak and start to decline in the near future, it may impose a serious and possibly an insurmountable speed limit on the pace of global economic expansion,” says Dr. Li.
To ensure sustained global economic progress despite the challenges of rising oil prices, we must seek out opportunities in the “Bridge Period” as emerging energy technologies become more cost effective, and traditional energy production becomes cleaner and more energy efficient.
Learn more about Investing in the “Bridge Period” by clicking here