An Oil Price of $140 a Barrel Could Lead to a Recession and 'Demand Destruction'


Goldberg said higher oil prices affect developed and developing economies in different ways. Both would experience "demand destruction," in which economies slow down due to the higher costs of oil, a major input. Emerging economies use crude oil mostly for industrial purposes, such as building infrastructure, said Goldberg. Developed economies, including the United States and United Kingdom, tend to experience the effects of oil prices on the retail level, like transportation.

Oil prices have affected consumers at the pump. The national average gas price is $3.52, up 14 cents from last week and 77 cents from a year ago, according to the Department of Energy's weekly figures released on Monday.

The worst-case scenario is the $140 a barrel and higher. Goldberg said the likelihood of oil reaching $140 a barrel is slim, but her firm is "not definitively outruling" that possibility.

"It would be a more detrimental scenario, not only exacerbating other emerging market nations," said Goldberg. "We would start to see indications of infrastructure damage to the extent that worldwide statistics show supply imbalance and decreases."

Consuming 19.2 Million Barrels of Oil a Day Leads to Vulnerability

Goldberg said "demand destruction" would actually take place in the U.S. at around $120 a barrel because at that level, she estimated the average price of gas would reach $4 a gallon.

But Goldberg said these were scenarios and not hard and fast rules.

"Essentially, it's very challenging to come up with the actual number that demand destruction kicks in," said Goldberg. She said each country has its own ability of varying degrees to import oil. She said the U.S. produces 5 million barrels of liquid fuels a day, with crude oil as the largest portion of that.

"But we're consuming 19.2 million a day," she said. "It makes us vulnerable."

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