Oil and Prosperity Are Inextricably Linked . . .

By Editors

The Motley Fool likes to look at long-range trends and one that it has featured lately is the link between petroleum and prosperity. Across the globe, it says, a nation’s gross domestic product closely correlates with its consumption of oil. This holds both for industrialized and underdeveloped countries. Thus, the United States, China and India all consume about the same amount of oil per GDP dollar, even though they are at very different stages of industrialization. (Some would say the Chinese are now ahead of us as far as manufacturing is concerned.) China and the US both produce about $2000 worth of output per barrel of oil while India is slightly less.

There are, however, differences. As the top graph illustrates, Japan, Germany and the United Kingdom all produce more output per barrel by a considerable margin. Japan produces 80 percent more ($3700), Germany twice as much ($4000) and the United Kingdom almost 150% more ($4800). There appear to be two reasons. First, Europe and Japan rely more on coal and natural gas in home heating and industrial boilers. Second and more important – according to Motley Fool – both Europe and Japan drive smaller cars. This is due to government regulations requiring that vehicles get 40 mpg.

Motley Fool presents this material in the context of arguing that world demands for oil are likely to rise rapidly in China and India and that “cheap oil isn’t coming back,” as illustrated in the next graph.

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