Shock the Monkey

[8ballrollin]

The sharp spikes in oil prices associated with the 1973-74 oil embargo, the 1978 Iranian Revolution, the Iran-Iraq War in 1980, and the first Persian Gulf War in 1990 were each followed by an economic recession. However, when oil prices started to rise again five years ago, many of us suggested that things would be different this time, in part because the price was rising much more gradually and so should be less disruptive of consumer spending patterns. Others emphasized that, despite the price increases, oil was still cheaper than it had been historically if you took into account inflation. However, once you include the most recent data, neither of those claims would still be true.

http://www.econbrowser.com/archives/...l_shock_o.html

[scottie]

Thankfully we've got our best man on it:

[jay santos]

Originally Posted by 8ballrollin

http://www.econbrowser.com/archives/...l_shock_o.html

This partially explains why the oil majors are not acting in a way that would increase supply dramatically. They are very conservative and still deciding capital projects based on a much lower oil price. They're not approving projects that would make profit on $70 a barrel because they don't expect this to endure long term and don't want to get left holding the bag. They're approving projects that make profit at $45 a barrel and grinding things out, not making dramatic shifts in production. Not to mention other factors, such as length of time for these projects, limited opportunities, etc.