More Bearish Economic Trend Negatively Impact Oil Demand

Despite the calls to open taps, OPEC continues to tread a cautious course. With the world oil demand projections put forward by various stake holders falling into a still more widening range, global economic woes coming to surface finally and the crude prices falling, uncertainty in the market seems steering the OPEC to maintain the status quo.

Global markets are definitely in a spin, with some hinting at a recession down the road. Doubts about the global crude demand growth are now being circulated.
“We are headed toward a major recession,’ Abu Dhabi-based veteran economic journalist Arshad Hussain, former commerce editor, Morning News, Dhaka and former managing editor, Gulf Commercial Abu Dhabi and editor World Times, London. “This is a patchwork economy, run by the successive Fed chairmen, from Mr. Greenspan to Mr. Bernanke, and this cannot go on. This facade has to crumble,” he said. He underlined that in the past, only major wars of global scale have been able to bring the global economy out of the recessionary woes.

With the woes of the global economy surfacing, are we slowly getting sucked into the same phase? Has the current bull run in the global crude markets contributed to the wobbling of the global economy? Pertinent questions indeed, with major implications, far and wide.

And if that happens, the crude markets would almost be the first to hit. And OPEC hesitation is thus understandable.

Fears about the global economy are now beginning to be expressed all around. Some are already arguing that problems in the US subprime mortgage sector are only the tip of a much larger problem and that their repercussions for the world’s largest economy could be severe. A sharp downturn in US economic growth would have an immediate knock-on effect in China, where growth is driven by exports and export-oriented investment, both of which would be hard hit by a slowdown in US consumption. In this case, oil demand growth could evaporate even in the booming economies of Asia, the CGES argued.

“The liquidity crises may be bigger than many realize,” seconded Nauman Barakat, senior vice president at Macquarie Futures US. “Also, the dollar strengthening and gold collapsing are negative signs for energy markets overall.” Oil’s drop this month also followed data showing slower growth than expected in the US service sector and job creation, concern about the subprime crisis and selling of oil futures by speculators, OPEC said.

The London-based Center for Global Energy Studies (CGES) puts the onus on oil too for the current global economic woes. The impact of high oil prices on the global economy is clearly evident, it says.

MENAFN