Thursday, February 23, 2012

Real Oil Consumption per Capita

In the following chart I'm taking the monthly U.S. Product Supplied of Crude Oil and Petroleum Products, multiplying by 12 to annualize it, dividing by the population, multiplying by the West Texas Intermediate spot price for oil, and then adjusting the result for inflation as seen in the consumer price index (so it is in January 2012 dollars).

Put another way, it shows the real purchasing power indirectly spent on oil for each and every one of us each year going back to 1981. If you would like to know what a family of three indirectly spends then simply multiply by three.

Click to enlarge.

Show of hands!

1. Who thinks the Fed is miraculously saving this economy long-term?
2. When this latest exponential trend in red fails again (and it will with 100% certainty) then will the stock market fail again too?

You are probably wondering how I can be so certain that the trend will fail again. Let me show the math. A 9.8% growth rate means that the amount spent doubles every 7 1/2 years. That means that in 30 years each and every one of us could expect to spend roughly $40,000 on oil each year (adjusted for inflation). If you think the consumer is tapped out now, then you haven't seen anything yet.

It's not going to happen. To nearly quote Dune, there would be demand destruction the likes of which even God has never seen.

Of course, oil could fall and not take the stock market with it. That's always a possibility. Perhaps real prosperity is in our future again. I'd not bet on it though. Oil, oil, oil, oil... that's all we seem to talk about. It reminds me of a favorite quote.

“You can discover what your enemy fears most by observing the means he uses to frighten you.” - Eric Hoffer

The same can also be said of those who try to comfort you.

Yet even if oil prices soar, I would be surprised if stock prices fell by much more than 20%. - Jeremy Siegel, March 1, 2011

This post inspired by Troy from the comments of the last post.


"Bend Over, Here It Comes Again"

Source Data:
EIA: Petroleum Product Supplied
St. Louis Fed: Population
St. Louis Fed: Spot Oil Price: WTI
St. Louis Fed: CPI


Stagflationary Mark said...

The price of WTI oil was $97 in November (the last data point on the chart). It's now $107.

At about $115 we'd be back on the red trend line more than likely (assuming there wasn't too much more demand destruction).

This is not a prediction where oil prices are headed next. My opinion in 2009 was that oil could hit $100 but that it wouldn't stay there if it did. I'm not sure what I think now. Bernanke's given the green light for oil speculation until late 2014. That doesn't mean it isn't more than priced in though.

In any event, I don't think our economy can prosper with $100 oil (much less China's). Time will tell.

Jazzbumpa said...

I'll miss the oil, but a person needs new experiences. They jar something deep inside, allowing him to grow. Without change something sleeps inside us, and seldom awakens. The sleeper must awaken.

Troy said...

Your number can also be reached by knowing that the average household retail consumption is 1000 gal/yr.

I don't see the endgame here -- I don't think Kunstler's doomview is necessarily our future, but we do survive and prosper thanks to the oil.

Our per-capita healthcare is $8000/yr, we could easily cut that in half to give us more headroom to keep the spice flowing.

Then there's land values. $500/mo more leaving the household budget is $500 that can't be spent on rents and mortgages. It's my thesis that rents simply have to fall from here, but I have to allow that basically the rent-takers in this economy are going to have to slug it out among themselves to see who has the ultimate pricing power.

In the larger macro picture, Gov't Education is an $8000 per household expense, too -- more if we have to pay to get their pensions funded over 70% -- per that the CA teachers need ~$500 per household to close the funding gap, and that's assuming 7.5% returns going forward, LOL.

There's the larger general government pension crisis coming, and the even larger social security shortfall coming.

Mr Earth sure picked a cruddy time to go all peak oil on us.

Oh, are defense cuts in the cards? There's another $8000 per household expense there.

Taxes basically need to be doubled from here. That's not inflationary, not that this nation has the collecive political maturity to honestly face up to this reality.

There's a lot to be learned how Japan drove into its own mess. Corruption and the power of government to pull the wool over people and defend its prerogatives for a very long time.

I've mentioned this before here I think, but 2026 is going to be an interesting year. 250th centennial thing, and we'll have the full baby boom on SSA if not Medicare by then. That's another $400B, $3000+/household that needs to be funded.

What a mess everything is. It doesn't have to be this way, but we are a corrupt and compromised society.

Stagflationary Mark said...

Jazzbumpa & Troy,

The sleeper is an insomniac. Fear of our future prosperity is a mind killer, lol. Sigh.

Fritz_O said...


Excellent synopsis of where we are.

We are in the hen basket now.

Stagflationary Mark said...


Why are we in this hen basket and where are we going?

Stagflationary Mark said...

I have good news.

To hell in a handbasket

"Going to hell in a handbasket", "going to hell in a handcart", "going to hell in a handbag" and '"sending something to hell in a handbasket" are variations on an American alliterative locution of unclear origin, which describes a situation headed for disaster without effort or in great haste.

Not much effort! Fantastic! ;)