After a wild ride up to $130 a barrel, the price of oil has come back down to its level from before Russia invaded Ukraine. Russian oil may be finding buyers despite the sanctions, and U.S. production continues to recover. But the situation remains very uncertain, and a big disruption in the quantity of Russian oil that reaches world refineries is a very significant possibility. In my previous post, I examined the causes of the run-up in the price of oil that had already occurred before the invasion and discussed the implications for U.S. inflation. Today I comment on the possible implications of further supply disruptions for U.S. real GDP.
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Category Archives: energy
Oil prices and inflation
The price of oil has doubled from its value a year ago and could increase much more if there are significant reductions in the quantity of Russian oil that reaches world refineries. This is the first in a series of two posts on what these events could mean for the U.S. economy. Today I focus on the implications for inflation, and in a follow-up post I will discuss implications for real GDP.
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Oil Price Forecasts: DoE EIA vs. Futures
Forecast as of 3 March, and confidence intervals implied by options.
The Gasoline Intensity of US GDP
Gasoline prices hit new (nominal) highs. But the usage of gasoline per unit GDP (and in absolute terms) has declined since 2008.
Market Implied Expected Rates
Interestingly, if implied forwards are to be believed, the Fed won’t be raising rates too fast.
Predictions – Oil Prices and Recoveries and Recessions
A bit over 12 years ago, one prognosticator Steven Kopits wrote:
With the 9.4% unemployment report WTI oil prices are, I believe, effectively at a post-crash high.
I think the economic news suggests that we are running up the back of the “V”.
This is good news and bad news. The good news: an unexpectedly sharp recovery. The bad news: Our analysis suggests the US falls back into recession above $80 oil, and I think we’ll have a chance to test the hypothesis relatively soon.
Would Pumping More Natural Gas in America Have Countered Russian Pressure?
A reader suggests this is the case. Well, if there was an integrated natural gas market, maybe. (To anticipate the answer to the question: Duh, NO).
Interpreting Macroeconomically a War Scenario, Graphically
Most of the discussion of the macro implications of an expanded Russian invasion of Ukraine presumes elevated oil prices (e.g., [1]). This makes sense, certainly for the short run. However, if oil prices rise sufficiently (keeping in mind for Brent have already risen from about $70/bbl to $90/bbl), they will kick the economy into a slowdown. Slowdowns tend to push down oil prices. I think in terms of graphs; this is how I see the short term, and (potentially) medium term.
Risk and Policy Uncertainty Measures – Gulf War I and Today
Looking back to one of the last major ground conflicts. In August 1990, Saddam Hussein’s forces invaded Kuwait. Here’re some risk and uncertainty indicators — some developed afterwards — for that period.
Gasoline Prices Moving Downward
As of Monday, 12/27, from EIA via FRED: