The oil price just keeps on rising

Revision. We are raising our oil price forecasts by close to USD 10. On average for 2007, Brent will cost USD 68 per barrel followed by USD 75 in the coming year. The respective seasonal highs in the third quarter will be USD 5-10 higher.

Upward. The primary trend, i.e. the development beyond short-term or seasonal fluctuations, continues to point north. While crude oil demand will rise strongly, the supply bottlenecks are becoming increasingly visible. Peak oil, i.e. the global zenith of crude oil production, is getting closer.


Impact. Rising oil prices will crimp the underlying growth trend, but not inflict any sustained damage, because the energy intensity of production is declining steadily (cf. chart). Moreover, consumers appear to be coming to terms with the higher energy price level.

ECB. The renewed rise in the price of oil will slow the pullback in inflation and increase the risks of second-round effects. Alongside the bright growth prospects, the bullish sentiment and the booming demand for credit, this underpins why we expect a “more aggressive” ECB in 2007 than the consensus.

FX Street