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Monday, December 15, 2008

The Impact of Falling Oil Prices on Energy Investment

by Calculated Risk on 12/15/2008 11:02:00 PM

Jad Mouawad at the NY Times writes about the impact of falling oil prices on investment: Big Oil Projects Put in Jeopardy by Fall in Prices

The NY Times article discusses the impact of falling oil prices on energy investment worldwide, but also interesting is the impact on domestic investment. The following graph compares real oil prices (data from the St. Louis Fed, adjusted with CPI) and real investment in petroleum exploration and wells in the U.S. (data from the BEA).

This doesn't include investment in alternative energy sources.

Oil Prices and Investment Click on graph for larger image in new window.

Not surprisingly there is a strong correlation between oil prices and investment. With oil prices now in the $45 per barrel range, this suggests that domestic investment could fall to $25 billion per year or so. This is another area of non-residential investment that will probably see a significant decline in 2009.