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Could the global recovery be hit by rising oil prices?

Earlier this week the price of Brent Crude oil rose to $95 a barrel, which was the highest level for just over two years. Although this has fallen slightly since it is still a major cause for concern.

There are pressures on both the demand and supply sides. The International Energy Agency has forecast that oil consumption will increase by 1.3m barrels a day, equal to 1.5%, this year to reach a record of 88.8m barrels. The IEA has suggested that the reliance on oil needs to be scaled back.

On the other side of the equation, the Organisation of Petroleum Exporting Countries, which controls about 35% of world supply, is said to prefer the price to be in the range of $70-80 a barrel. However, there is no sign currently that they have plans to increase their output.

Rising oil prices could spell danger for global recovery.

The Chief Economist of the IEA, Fatih Birol, told the Financial Times that: “Oil prices are entering a dangerous zone for the global economy. The oil import bills are becoming a threat to the economic recovery. This is a wake-up call to the oil consuming countries and to the oil producers.”

In fact, over the past year the cost of oil imports to the 34 major advanced countries which are members of the OECD, rose by over $200bn to reach $790bn. This is equivalent to 0.5% of the gross domestic product in the OECD.

If the price of crude oil continues to rise it will not only put pressure on industry, it will also be another addition to the costs paid by households, as they see the price of their petrol and heating oils rising.

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Posted in Energy supply and security, OECD, Oil, OPEC

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