In 2006, the U.S. consumed an estimated 20.7 million barrels of oil a day, or approximately 7.5 billion barrels of oil for the entire year. That's the equivalent of 65.3 barrels of oil for each of the more than 115 million households in America, says Ronald R. Cooke, who bills himself The Cultural Economist, and has a blog by that name.

Given that much consumption of oil and refined products, any change in the price per barrel can have a big effect on the U.S. economy, he says. "The bill for our use of refined oil products, such as gasoline, diesel and heating oil fuels, along with the consumption of refined oil as a material used to manufacture other products, now exceeds $860 billion per year-or about 6.5% of GDP."

Cooke says it took roughly four years for U.S. oil consumption to decline after the price shock of 1979. The lower prices sparked by the oil-price shock of 1986, which lasted off and on through 1999, encouraged only a marginal increase in consumption. The price increases of 2000, 2004 and 2005 have yet to cause any significant change in oil consumption.

But Cooke warns that a recession may be likely today. "Given the evidence, the odds of oil playing a role in either triggering or exacerbating a worldwide recession before the end of 2008 are very high."

The relationship between oil consumption, expenditures and recessions has been proven many times in the past, Cooke says. "Significant increases in the amount of money America spends on oil (1973, 1979, 1990 and 2000) have been followed by a recession. Yes, other factors contributed to the decline in GDP that characterized these recessions. However, one cannot escape a nagging fear that sharp increases in oil expenditures may cause a subsequent recession.

"The huge increases that occurred in 2004 and 2005 suggest the possibility of a coming recession in the 2007-08 timeframe."



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