Eyes on Oil

Financial Planning |

Eyes on Oil

March 6th, 2025

Christopher Mallon

As markets continue facing volatility amid news of tariffs and trade tensions  it makes sense to shift attention over to oil prices and their impact on recessions.

Below I am adding a chart plotting WTI Crude Oil Price per Barrel from St. Louis Fed. However, instead of the customary tracking of Price per Barrel I am showing the % change from one year before. This chart does a better job at showing price spikes in oil. I also have the last 6 Recessions shaded in.

A walk down memory lane: 1

  • 1973 – Yom Kippur War contributed to a 160%+ spike in oil
  • 1979 – Iranian Revolution disrupted oil supply causing a 120%+ spike in prices
  • 1990 – Iraq’s Invasion of Kuwait sparked fears causing an 80%+ spike
  • 1999 – OPEC Production Cuts reduced supply pushing prices up over 120%
  • 2007-2008 – A Supply Demand Imbalance with oil saw prices increase over 90%
  • 2020 – COVID Lockdowns Oil prices not a contributing factor to the severe but incredibly short recession

Takeaways

  1. Five of the last six recessions saw an annual increase in oil prices of at least 80%1
  2. WTI Crude Oil closed at $68.63/barrel on March 6th, down from approximately $80/barrel one year ago. A decline of -16% 3
  3. In fact, this is down from over $120/barrel we saw with the start of the Ukraine War of 2022 3

Why this amount of consistency? When gasoline prices are spiking it eats up a larger portion of the consumer’s budget. Money that would be spent on other goods and services instead is spent on commuting. This can then trickle through to companies’ bottom lines as people spend less and earnings fall.

Current Demand Levels

A natural follow up question might be “Are prices falling because demand is falling? That can’t be good.”

Well, fortunately the US Energy Information Administration (EIA) puts out a weekly reading comparing gasoline demand from one year prior to now. (See footnote 4 for full report)

The blue line shows 4 week average US gas demand for the current year. While the brown line shows the same 4 week average from the year prior. So, when the blue line is above the brown line that means demand is above last year.

Takeaway

Right now demand for gasoline is slightly above where we were one year ago. While not showing a spike in demand we are certainly not seeing a dramatic slowdown. We will be watching this measure closely over the next few weeks to see if there is softening in consumer spending.

Final Thoughts

While a spike in oil prices is never the sole cause for a recession they certainly have an impact on the consumer. Since consumer spending accounts for approximately 70% of GDP2 the health of the consumer is crucial to staying out of recessions.

Questions or comments? Reach me at chris@pcmadvisors.com

 

Footnotes

  1. https://www.brookings.edu/wp-content/uploads/2016/07/2009a_bpea_hamilton-1.pdf
  2. https://fred.stlouisfed.org/series/DPCERE1Q156NBEA

3.

4. https://www.eia.gov/petroleum/weekly/gasoline.php

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