Charting The Impact Of Prior Oil Crises, With A Particular Focus On The 350% Increase In Price Following The Yom Kippur War

Tyler Durden's picture

Morgan Stanley has compiled a convenient table looking at the impact of all prior oil crises, and how that reflected in peak oil production loss as well as the price of oil on a monthly, 3 month and 6 months basis. And while the biggest crises of modern days has so far been the Yom Kippur War with a total loss of 5 million mmb/d resulting in a 350% increase in the price of oil 6 months following, should the Libyan crisis escalate and impact even half of Saudi production (keep an eye on the March 11 organized protests), the current MENA crisis will promptly win the first prize for biggest oil surge. Should the past 6 month record be passed, Brent will likely be trading around $350 around July.

In terms of thresholds, oil burden has a few basis points to go before economic growth will be impacted. The oil burden which hit 3.4%, when Brent was $80.34, needs to surpass 4% for Oil Demand growth, and thus economic growth, to be impacted. Brent is now $115. We are beyond 4%.

Lastly, it wouldn't be a Morgan Stanley report if it didn't have a silver lining. Here is how MS tried to mask the impact of the oil price surge:

Sorry Morgan Stanley but that chart is also inversely correalted with the amount of cheap credit, and the 10 Year yield. All it shows is that the Great Moderation has resulted in GDP growth (which has now inverted on an incremental debt/GDP basis). As more and more countries commence to withdraw liquidity, it simply means that the double whammy of a liquidity contraction, coming as soon as June 30, will have that much more of a dire impact on the world economy as a result of the relentless grind up higher in oil.