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Economic recovery threatened by oil price spike?


Economic recovery threatened by oil price spike?


The spike in oil prices from the uprising in Libya is hitting people’s pockets at the petrol pumps and bringing warnings that it could be a game-changer for the world economy.

Economists say we are still a long way from an oil-induced double-dip recession but this will add to central banks worries about inflation.

Nigel Gault, the chief US economists with forecaster IHS Global Insight, believes it could have a profound effect there.

He said: “Every $10 on the oil price boosts gasoline prices by about 25 cents (a gallon), pushes up consumer prices by about 0.4 of a percent total and we think takes about 0.2 percent off growth in the (US) economy. If consumers are paying higher prices at the gasoline pump then that leaves them with less income to spend on everything else.”

Different countries would be affected in different ways, depending on their underlying economic strength and whether they are oil producers or importers.

In Europe Italy is the most exposed to the turmoil in Libya, but analysts said output loss from another oil producer after Libya would lead to global shortages.

Benchmark Brent crude oil rose close to $120 a barrel at one stage on Thursday and US light crude was $101 a barrel before falling back.

The concern for oil markets is how unrest might affect Saudi Arabia, which not only pumps around 10 percent of the world’s oil but is also the only holder of significant spare crude production capacity that can be used to plug outages.

Without Saudi Arabia’s four million barrels per day of spare capacity, there is little margin in the global oil supply system.

To date, Saudi Arabia has escaped popular protests that have raged across the Arab world, toppling the leaders of Egypt and Tunisia and spreading as far as Saudi neighbour Bahrain.

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