I read an interesting take on the oil situation. We all feel the pressure. We all see the heights that the price per barrel are attaining. But where is the break point? I asked that question of myself and mentioned it to friends just the other day. In January I had bought a bike, and I mapped out distances and routes to the two small towns I live between. But as gas hits $3.89/gal, I'm still driving, though a lot less. But at what price do I abandon my car for the bike? $4 per gallon? $5?
This guy asked the same question: "How big is the problem? Multiplying production (barrels per year) times the oil price (dollars per barrel) gives a total cost in dollars per year. It's an enormous number; tens of trillions of dollars per year. To put a scale on it, the three thin curves on the graph show the oil cost in contrast to the total world domestic product; the annual value the goods and services added up for all the world's countries. The three curves show the oil cost at one percent, two and a half percent, and five percent of the total world economic output. At $130 this morning, we are at six and a half percent."
"Oil production obviously cannot consume 100 percent of the world's income. My intuitive, uninformed guess is that it cannot go above 15 percent. If we see oil at $300 per barrel, we will be looking out over the smoldering ruins of the world's economy."
That's an interesting take. Comparing the total amount of money available in the world economy to the price of the commodity. At some point we run out of money before we run out of need. What happens then? I dunno. I've never seen a smoldering economy but I think I will. And soon.