World

 

Brazil

Mexico

Bolivia

Peru

Trinidad &
Tobago

Venezuela








Very usefull links



Petroleumworld
Bookstore



Institutional
links


OPEC



 


Petroleumworld
Business Partners

 


IRAQ OIL THE FORUM


Blogspots
recomended

caracas chronicles

Gustavo Coronel

Iran Watch.org

Venezuela Today

Le Blog des
Energies Nouvelles

 

 

Lagniappe

 

 

 

John Kemp : Oil at $100
could tip world into slowdown



Past experience suggests oil prices are at a level that poses a serious threat to the advanced economies and increases the risk of a double-dip recession.

The International Energy Agency (IEA) has warned prices are approaching the "danger zone". Total's bullish Chief Executive Christophe De Margerie has admitted "it would have been better for the prices not to go too high too quickly".

But OPEC members are resisting calls for an emergency meeting or output increase. Price hawks Iran , Venezuela and Libya have indicated they are comfortable with $100. Even the more moderate Saudi Arabia seems unwilling to try to restrain prices by upping production despite reaffirming its commitment to a notional price target of $70-80 per barrel.

2007-2008 TIMELINE

What level of oil prices actually damages growth is an empirical question.

Oil bulls dispute the claim high oil prices played any significant role triggering the last downturn, or pose a serious risk to growth in 2011. In particular, they note economic output in the OECD is now far less oil-intensive than in the 1970s and early 1980s, reducing the risk of sharp price rises causing a macro shock.

For the bulls, falling U.S. house prices, an escalating credit crisis, and the lagged effect of interest rate increases by the Federal Reserve and other central banks between 2004 and 2007 are sufficient to explain the start of the Great Recession in 2007-2008.

Surging oil prices played little or no role despite doubling to $140 in the twelve months to July 2008, a record level in both nominal and real terms.

Oil bulls argue prices would have been sustainable above $100 if the recession had not intervened. Prices were driven by macroeconomic factors, not the other way around. The seizing up of global credit markets following the collapse of Lehman Brothers followed by the sudden collapse of trade flows and industrial production triggered the sharp fall in crude oil prices in late 2008.

Using current econometric techniques it is not possible to disentangle the effect of rising oil prices from the impact of a slowing housing market , interest rate rises and mounting financial problems in the banking system.

But it is clear industrial production had peaked in most of the advanced economies well before Lehman imploded in September 2008 -- a time when rising oil prices were hitting consumer spending and raising business costs.

Industrial output peaked in Italy , Spain and the United States as early as June-August 2007, according to official estimates published by the OECD. This is consistent with the findings of the U.S. National Bureau of Economic Research (NBER) which date the onset of the recession to December 2007.

Twelve other OECD members saw production peak between December 2007 and June 2008 -- including the Netherlands and Sweden (Dec 2007); Finland and Mexico (Jan 2008); Germany , Hungary, Japan and Slovakia (Feb 2008); and Belgium, the Czech Republic, France and Greece (Apr 2008). The global recession was well underway six months before Lehman went bankrupt (though of course it intensified afterwards).

U.S. equities peaked in late 2007 and had slid substantially by the time oil peaked in July 2008, let alone the seizure of credit markets in September 2008.

COMPLACENCY RISK

Of course problems with subprime loans had started to become more visible from summer 2007 onward. The first disturbing tremors of the credit crisis were felt in August 2007. Investors started to become much more cautious and risk premiums rose. But few at that time foresaw the extent of the crisis that would eventually unfold. Even the Fed thought mortgage problems would be largely "contained".

With current techniques it will never be possible to determine the precise role of rising oil prices compared with other factors in tipping the U.S. and other economies into recession in H2 2007 and H1 2008. But it should be clear these economies were already starting to look very unhealthy as oil prices begin their final ascent from $50 at the start of 2007 to $147 in July 2008.

We do know increasing expenditure on oil and other forms of energy began to drag on other forms of consumer spending in this period. We also know the full impact of price rises only becomes apparent over time as higher costs sap household and corporate budgets and begin to filter through to other price increases.

It is therefore highly likely rising prices were exerting a negative influence on the economy well before they peaked at $147 in July.

Bullish observers dismiss these concerns by pointing to continued strong growth in emerging markets, which they expect to continue supporting rapid increases in oil consumption.

But emerging markets are not immune to price rises either. In fact, unlike the advanced economies, emerging market growth is very oil intensive, leaving them far more exposed to the damaging effects of price increases. Moreover, emerging markets still rely to a significant extent on exporting to the OECD and are exposed to any renewed slowdown.

No one can quantify the effects of rising oil prices on global growth precisely or separate them from the impact of monetary policy, financial conditions and confidence. But sharp oil price increases have been associated with downturn in the past, and the last time oil prices were at this level the OECD economies had already started to slide into recession.

It is dangerously complacent to assume prices can remain at present very high levels, or continue rising, without becoming a drag on growth in 2011 and increasing the risk of a renewed downturn.

 


 

John Kemp is a Reuters market analyst. The views expressed are his own . Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was originally published by Reuters, on Jan, 17, 2011. Petroleumworld reprint this article in the interest of our readers.

All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld,

Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.

All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by the originator.

Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law.

If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.
Internet web links to http://www.petroleumworld.com are appreciated

 

Petroleumworld News 01/18/2011



Petroleumworld welcomes your feedback
and comments, share your thoughts on this article,
your feedback is important to us!


We invite all our readers to share with us their views and
comments about this article, write to editor@petroleumworld.com

Copyright© 1999-2010 Petroleumworld or respective author or news agency. All rights reserved.

We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source.Other stories you have to get authorization by its authors

Send this story to a friend Any question or suggestions,
please write to: editor@petroleumworld.com

Best Viewed with IE 5.01+Windows NT 4.0, '95, '98, ME,
XP, Vista, W7 +/ 800x
600 pixels

 


TOP


Editor:Elio Ohep /
Contact Email: editor@petroleumworld.com

Contact:
editor@petroleumworld.com/ phone: Office (58 212) 635 7252,
or Cel (58 412) 996 3730 or
(58  412) 952 5301


CopyRight © 1999-2010, Elio Ohep - All Rights Reserved. Legal Information

- CCS Office Tele
phone/Teléfonos Oficina: (58 212) 635 7252

PW in Top 100 Energy Sites


Technorati Profile

Fair use notice of copyrighted material:

Legal Information

This site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission fromPetroleumworld or the copyright owner of the material.