The age of cheap oil is over, and price volatility is here to stay

Put away the stack-heeled shoes and the Slade records. Higher oil prices may have rekindled memories of glam rock and loon pants, but the west is not about to return to the days of sky-high inflation that marked the 1970s.

That was the good news Nov. 30 from the west’s premier economic thinktank. From its headquarters in Paris, the Organisation for Economic Cooperation and Development (IECD) delivered a cautiously optimistic assessment of the chances of the global economy avoiding a fresh lurch into recession. Yes, it says, a higher oil price is putting the brakes on growth. Yes, it admits, the fall in the dollar could cause problems for certain parts of the world — especially Europe — but it is nowhere near as gloomy about the outlook as some of the Cassandras of the City and Wall Street.

Now for the bad news. It may be wildly premature to talk of recession, or even the real nightmare from the 1970s — stagflation — but high oil prices are here to stay, although the OECD believes it is unlikely stay at last night’s high of nearly US$50 a barrel in New York. With global demand expected to remain strong, it thinks prices will be at US$35 a barrel by 2030 compared with US$27 in 2003. What’s more, the world is going to become increasingly reliant on the turbulent Middle East for its supplies.

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