Boom in Asia means oil price will continue to rise above $100 a barrel

The good news about oil is that Opec is not going to cut production; the bad news, that it will not increase it. So, oil stays above $100 a barrel? Or, thanks to the impending global downturn, falls back a bit? Or, thanks to the booming demand from Asia, continues on its upward path?

It is an issue of profound importance for at least half a dozen reasons. The most obvious is that three of the past four global downturns have been associated with a surge in the oil price


These issues are, of course, inter-connected but it may be helpful to try to separate them. So a word about each.

If the current downturn does become really serious, only part of the blame can be laid at the door of energy prices. We have poorly functioning credit markets, which are the result of excess lending by the banks, in turn the result of a period of very low interest rates and a surge in saving in Asia. So there has been a speculative bubble, akin to the late 1990s one, but characterised by money flooding into property rather than dotcom companies. That is the primary cause of the downturn. So if things get really nasty, while oil will be a contributing factor, it will be only partly to blame. However, high energy prices will inhibit the recovery, making it a longer pull out of the dip than otherwise would be the case.

Independent