21 September 2023
With the recent strength in the oil price reviving inflationary fears, we look at how current oil prices compare to history. Below, we show the inflation-adjusted oil price over the past fifty years. On this basis, the current $95 per barrel price is in line with the average real oil price over the past twenty years, and while oil has historically not been able to sustain a price above $120 per barrel for very long, these historic prices need to be seen in inflation-adjusted terms.
In a similar vein, we also consider global oil consumption, measured as the total number of barrels consumed multiplied by the average price for the year against global GDP. Historically, the global economy has spent an average of 3.5% of GDP on oil consumption, with this ratio moving as high as 7% in the 1980s and as low as 1% in the mid-90s. At a price of $95 per barrel, global spending on oil consumption is at its long-run average of about 3.5% of global GDP.
Our global multi-asset class mandates are currently overweight energy within their global equity allocation and hold an allocation to oil within their commodity exposure. The recent strong performance of oil raises the question of whether we should be taking profits on these positions, especially against the backdrop of a potential global recession and the slowdown in China, but the above data would suggest that oil prices are not yet stretched on a long-term basis.
Our Market Snippets aim to provide concise insight into our investment research process. Each week, we highlight one chart that showcases our research, motivates our current positioning, or simply presents something interesting we’ve discovered in global financial markets.
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