Kudlow’s Money Politics

The Oil Debate

We had a dynamite oil discussion on last night’s Kudlow & Company. My take on the price of oil is that it’s largely being determined by the strength of the global economic boom. It’s about the global spread of capitalism throughout China, India, Eastern Europe, and everyplace else.

Incidentally, higher priced oil doesn’t pack the same punch as it used to.

Check out the following chart.

Isn’t that wonderful? What it shows is that the use of oil per GDP unit is down 50 percent since World War II. Around 1950, energy consumption was just under 20 percent. Then around 1980, it had fallen to around 15 percent. Nowadays, it’s down under 9 percent. This is good news. So why’s everyone hyperventilating about oil? Why’s everyone so pessimistic?

Here are some additional thoughts from a couple of my guests.

DAN YERGIN (chairman of Cambridge Energy Research Associates): [The price of oil] is decoupled from the fundamentals of supply and demand. What’s driving the oil price now is the cauldron of geopolitics, momentum and financial markets, and tying it all together, fear, combined with a weakening dollar. So we could be one or two events away from $100 a barrel oil. So events could put it there. But if you look at it in terms of supply and demand, it’s not as connected as it was in the past’

Larry Kudlow — Larry Kudlow is CNBC’s senior contributor. His new book is JFK and the Reagan Revolution: A Secret History of American Prosperity, written with Brian Domitrovic.

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