Energy Stat of the Week

Energy Stat: Pain at the Pump, but Even $120 Oil Is NOT Enough to Materially Disrupt Consumer Spending or Oil Demand

April 4, 2022

Almost exactly two years ago, oil was valued at essentially zero: such was the market panic in the early weeks of the COVID pandemic’s lockdowns. To state the obvious, recently the panic has been in the opposite direction. Spot oil prices are off their early March highs, amid cautious optimism that Russia’s invasion of Ukraine will end via a negotiated settlement, as well as last week’s decision to initiate the largest-ever release of supply from the U.S. Strategic Petroleum Reserve (more on that later in the report). But prices are still up around 10% since mid-February, reflecting the uncertainties vis-a-vis infrastructure damage, stricter sanctions, and private-sector shunning of Russian crude. Until there is at least a ceasefire, and preferably a durable cessation of hostilities, it is hard to imagine prices returning to pre-war levels. Today we will look at how consumers in the G20 major economies are being affected by the current oil price environment, i.e. Brent crude in the $100-120/Bbl range. The fact that consumers across the board are feeling pain at the pump is common sense, but the magnitude varies a great deal from country to country. On the whole, the near-term economic impact and thus risk of oil demand destruction is smaller than commonly believed. A prolonged period of triple-digit oil prices would stimulate faster adoption of electric mobility, accelerating oil demand displacement, though that is a proverbial marathon rather than sprint.