As oil prices continue to rise, so does uncertainty, says S&P top economist

03 July 2008

As oil prices continue to hit new highs, David Wyss, Standard & Poor's chief  economist, has provided a global look at what's driving the demand and supply equation in an article published yesterday.

This article, titled "As Demand Continues To Increase, How Will The World Cope With Sustained High Oil Prices?" is the lead article in a series that will be published later today as a Standard & Poor's special report on the credit impact of rising energy costs. More than 10 companies are profiled to provide insight into how damaging or beneficial higher energy prices are in different industries and the strategies employed to cope with these impacts.

Total world energy consumption was up 2.4 per cent  in 2007, a slight slowdown from 2.7 per cent  in 2006 but still an above-average increase. Every major region saw higher consumption, with Asia up the most and Europe the least.

With China accounting for more than half the total world increase, it is hard to see much slowdown, even with more  recent declines in Eurozone and US consumption.

"The good news is that energy is a smaller part of the U.S. and world economies than it once was," noted Wyss. "Even this year, we expect the average U.S. household to spend 6.7 per cent of its income on energy, which is about the same as in 1971, before OPEC." In 1980 and 1981, energy was 7.9 per cent of income. This reflects a greater efficiency in energy use relative to GDP.

Even with that, however, per-capita use of energy has lifted. In the U.S., higher per-capita GDP has increased energy use per person by 2.0 per cent (1971 to 2005). For the world overall, energy use per head has risen 15.7 per cent (1971-2004). The average American used 4.7 times as much energy as the average for the world in 2005 and nearly twice the average of Western Europe and Japan.