Why $60 doesn’t have the world over a barrel

For decades, the uneasy truce between the Middle East’s oil sheikhs and the west has been based on the assumption that rocketing oil prices are bad for everyone.

Saudi Arabia has kept the black stuff flowing freely, for fear that a dramatic oil shock could tip the world into recession, hurting oil producers and consumers alike. But with the global economy still motoring along despite crude prices at an eye-watering $60 a barrel, analysts are asking whether expensive oil is now something the world can easily afford.

The cost of a barrel of crude has doubled over the past two years. That’s an oil shock by anyone’s reckoning, but the most shocking thing about it has been how little it has held back global economic growth. Car sales in the US jumped by almost 10 per cent in the year to July – hardly a sign that consumers are flinching at the price of gasoline – and GDP growth was a healthy 3.4 per cent in the second quarter. ‘Oil prices have been surprisingly high for the last few months, and the impact has been surprisingly muted,’ says Lorenzo Codogno of Bank of America.

The Observer