The world economy is better poised to weather higher prices.
The price of a barrel of oil fell below $100 a barrel in 2014 and has stayed below that psychologically important threshold since. However, Brent crude, the international oil benchmark, is up 46 percent in the past 12 months, and in recent days has been testing $80. Part of the increase is explained by a resurgent global economy: The International Monetary Fund expects global growth to pick up to 3.9 percent this year, the strongest since 2011. What’s worrying, though, is that supplies are more constrained than they’ve been in years, so disruptions to output can quickly reverberate from the wellhead all the way to the gasoline pump. Here’s a look at the impact higher prices could have on a variety of important actors.
1 WHAT’S THE EFFECT ON THE WORLD ECONOMY?
While it’s true that higher oil prices are generally a drag on growth, the so-called oil intensity of the global economy continues to decline. A recent analysis by UBS Group AG found that the world economy needs 7 percent less oil to produce the same amount of gross domestic product than it did in 2007. Of course, the impact will vary from country to country: Those that rely on imported energy will be squeezed as costs go up, while at exporters, government coffers will get a fillip.
2 WHAT’S THE FALLOUT FROM THE U.S. PULLING OUT OF THE IRAN NUCLEAR DEAL?
Oil prices have risen 18 percent this year—half of that increase reflects stronger global demand, a Bloomberg Economics model suggests. The rest is likely l due to what’s known as supply shocks. Approximately 1 million barrels of crude per day are at stake from Trump’s decision to reinstate sanctions on Iran, but the market effect might be mitigated by increased pumping elsewhere, according to the analysis.
3 WHO WINS FROM HIGHER OIL PRICES?
This story is from the May 28, 2018 edition of Bloomberg Businessweek.
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This story is from the May 28, 2018 edition of Bloomberg Businessweek.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
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