Brent crude oil prices have risen 33 percent this year. and approaching the upper level within six months. While higher prices driven by strong demand reflect a strong global economy, the supply shock is attributed to disadvantages.
Much will depend on how sustainable this growth is.
In exporting countries, this growth will boost corporate and government revenues, while the consumer country will reduce the cost of pumping raw materials, possibly fueling inflation and undermining demand. Finally, a point can be reached when higher prices affect everyone.
1. What does it mean for global growth?
The impact can be varied. The negative effects of rising oil prices will have an impact on household income and spending and can fuel inflation.
China, as the world's largest oil importer, is extremely vulnerable and many European countries also rely on imported energy. Seasonal effects will also impact. With summer in the northern hemisphere, consumers can change their energy resources and reduce their consumption. The slowdown of the global economy will also be detrimental to demand and, correspondingly, the price of parentheses.
2. How can the world economy respond to US $ 100 per barrel?
Economists believe that for long-term economic growth, oil prices should remain above $ 100 a barrel. In addition, it depends a lot on the strength or weakness of the US dollar if the crude oil is valued in US dollars. The Oxford Economics analysis shows that if Brent crude oil prices reach $ 100 per barrel by the end of 2019, global GDP will be 0.6% by the end of 2020. This is currently lower than currently forecast, and the inflation rate is 0.7%. points.
"We see the risks associated with significantly higher oil prices," said Oxford economists John Payne and Gabriel Sterne. – In the short term, supply side effects seem to be offset by higher production volumes elsewhere, but the market is narrowing, and would be enough to offer another shock to oil prices reaching $ 100 per barrel ".
3. What impact will the market have on Iran and D. Short?
Radical changes in world oil trade related to the dispute between Iran and Trump can have a significant impact on the financial markets, with supplies reaching 800,000 barrels per day. The uncertainty about accessibility has already caused huge losses in the oil markets. And in such circumstances, political sensitivity is fueling instability in other markets.
D. A brief promise to help – along with Saudi Arabia and the United Arab Emirates – those who will have to choose another provider instead of Iran. But the United States argues that domestic supply can help deal with difficult losses if around a quarter of the amount produced by Iran is produced in the US with similar crude oil.
4. Who wins for higher oil prices?
Emerging economies dominate the list of oil producing countries, so they will feel more exposed to higher oil prices than developed ones. A larger revenue will help to correct budget and current account deficits, allowing governments to increase spending, which in turn will increase investment. Among the winners are countries like Saudi Arabia, Russia, Norway, Nigeria and Ecuador, suggests Noura's analysis.
5. Who loses?
Emerging economies, with current and fiscal deficits, face capital flight and weaker exchange rate risks, which can fuel inflation and at the same time force governments and central banks to consider available options: raising interest rates even at rates slower growth, or not risk taking capital.
Nomura names countries like Turkey, Ukraine and India as losers.
6. What would this be for the world's largest economy?
Although US oil producers are trying to seize any increase in sales due to withdrawal of customers from Iran, a large US economy will not necessarily benefit from oil prices of $ 100 a barrel.
Such a price increase will dissuade US consumers, who are still considered the backbone of steady economic growth. Prices on the gas station network have already risen more than 7% in April to $ 2.89 a gallon, and this price momentum may affect retail sales, which have jumped to their peak since March 2017.
And if the situation in global oil markets deteriorates, there is a risk that political accusations of sanctions could again hurt the United States, which could lead to a negative reaction to investment or other measures that threaten economic stability.
7. Would this lead to higher overall inflation?
Because energy futures are clearly tied to consumer price indices, policymakers are pursuing basic indices without variable components. If the price increase is significant and long-term, these costs will go to the transportation and utilities sectors.
8. What would this mean for central banks?
Following the example of the US Federal Reserve Bank, the world's central banks are peaceful because the lack of inflation allows policymakers to focus more on slowing growth. And someone is unlikely to change in the short term. The International Monetary Fund (IMF) has reduced its forecast of global economic growth by stating that the world is now at a "sensitive spot."