Oil Shock and Inflation Ahead

Slogans are comforting and easy to learn. Since late 2008 the hard-worked slogan is that cheaper oil, today, is one of the few rays of sunshine for the recession-wracked global economy. Today’s variant of the mother slogan “High oil prices hurt economic growth” has little or no proof to offer, for example cheaper oil helping recovery of 4WD car sales, airline passenger numbers, house building activity, world steel output, or production of plastics, pesticides and fertilizer. The fallback slogan for cheap oil aficionados is that even if it doesn
Oil prices themselves are far above the ‘nice price’ of the late 1990s and first few years of the 21stC, that is below 30 USD/bbl, and at present are tending to be “surprisingly firm” at around 50 USD/bbl. This is attributed to surprisingly firm discipline among OPEC suppliers facing their own problems of economic recession and falling investment, not only in the oil and gas sector. When as likely by June-July prices bounce back above the ‘psychological ceiling’ of 60 dollars, despite the recession, the mother slogan that high oil prices destroy economic growth can be dusted off and recycled, as an explanation why the recession just keeps on keeping on.

FinancialSense.com