Energy spending down big since 2008

Mike Zaccardi, CFA, CMT

US annual energy expenditures as a share of GDP is set to fall to its lowest level in decades, per the EIA. I joked with some fellow analysts on Twitter about this writing topic, and a response was “low prices. The end.”

Pretty much true. The chart peaked by in 2008 just shy of 10% when oil prices hit $147 per barrel and coal & natural gas costs for electricity generation were very high.

Since, it’s been a steady decline for the most part. Energy prices rebounded post-recession from 2009 to 2012, but efficiencies were also gained in our household appliances and lighting. Gone are the days of the Clark Griswold-style Christmas lights that would send the household power usage meter spiking!

Oil cratered in the summer of 2014, falling from $120 per barrel to near $50. And it hasn’t recovered. Today, US oil trades near $30-35 as retail gasoline prices are sub-$2. Natural gas, which commands a huge share of the power generation mix today, has seen its cost decline to 25-year lows. So with all that is going on in the world, energy expenditures are not really a concern.

If anything, the US may want to see oil prices stabilize and not go lower! If oil trades into the single digits or negative territory again, many oil companies would go bust. Energy still employs millions of Americans. President Trump has recently tweeted with pleasure about oil prices climbing back up.

It’s not all the numerator though. Always pay attention to the denominator (one of my mottos). Health care, housing, education, child care – all of these costs have risen in the last 10-20 years as energy costs have declined. It seems like ages ago when we were complaining about $4+ gasoline prices. Now covering costs related to hospital bills & day care are top of mind. And of course GDP has increased from the mid-2000s despite taking a big hit this quarter.

Is an energy rebound set to take place or will the trend continue? Traders are hotly debating the age-old ‘regime-change versus mean-reversion’ narrative.

Chart source: EIA
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