Will oil be the kiss of death for recovery?
The price of oil has suddenly broken higher – to the point where triple-digit crude is once again in the offing.
This week oil climbed to $87 a barrel, its highest level since October 2008. This was after a period of eight months when oil traded between $70 and $80, a narrow band that pleased oil producers without hurting consumers too much.
The latest surge seems to have been prompted by rising confidence in a global economic recovery, even if most traders and bankers are still cautious about supply and demand fundamentals. The more bullish Wall Street banks see prices climbing further, with Barclays Capital forecasting $97, Goldman Sachs $110 and Morgan Stanley $100 next year.
But the higher prices go, the deeper the concerns that they will stifle global growth. Jeff Rubin, a former CIBC chief economist and author of a book on oil and globalization, says: “Triple-digit oil prices are going to threaten a world recovery.”
Pricier oil and other key commodities, notably iron ore and copper, could ripple through the economy and financial markets, potentially triggering inflation and forcing central banks to lift interest rates from ultra-low levels. This could force bond yields higher, but lower the attractions of equities.
However, higher oil prices could lift energy shares. In the S&P 500 index, the energy sector is up just 2.4 per cent this year and was barely positive in the first quarter, lagging behind the index's 6 per cent gain for the year.
Nicholas Colas, ConvergEx Group chief market strategist, says: “With crude oil prices marching steadily higher, portfolio exposure to the energy sector could well become a key determinant of overall investment performance through the balance of 2010.”
Oil prices first hit $100 a barrel in January 2008, before continuing their rapid ascent to peak at $147 in July of that year. They fell to a low of $32 in December 2008, before recovering again. Yesterday oil traded at about $85 a barrel.
The latest rise comes as the economic recovery fuels a jump in oil demand after the first global decline in a quarter century. Supply is not a worry, as the Opec oil cartel has more than 6m b/d of capacity to spare in a pinch.
One difference from last year is that then the oil price was rising against the backdrop of a weaker dollar. This year crude and the dollar have risen together.
Policymakers seem untroubled. Energy ministers at the International Energy Forum in Mexico last week embraced less volatility, not lower prices. Lawrence Summers, director of the US National Economic Council, in remarks this week bemoaned his country's dependence on foreign oil supplies, but did not complain about prices.
Some economists do not view $80 oil as a threat to global growth, which the International Monetary Fund projects at 4 per cent this year. James Hamilton, an economist at the University of California, San Diego, is author of a paper that found oil's 2008 surge to $147 a barrel helped tip a housing-led slowdown into a recession. This time, the relatively steady nature of the price rebound has allowed consumers to adjust.
“The shock value is gone now,” Prof Hamilton says.
Hussein Allidina, commodity strategist at Morgan Stanley, says the $100 oil he predicts next year would increase the “oil burden” – a function of demand, prices and global output – to about 4 per cent from 2.8 per cent late last year. This would hurt developed economies more than emerging ones, as the latter are powering global growth and can afford fuel subsidies, he says. The IMF estimates consumer petroleum subsidies will reach almost $250bn this year.
“If we were to move to $100 a barrel, economic growth would start to slow, but ‘derail' is likely too strong a word,” Mr Allidina says.
A move to higher oil prices would not necessarily generate corresponding gains in retail fuel prices, as new refining capacity has made petrol markets more competitive. In the US, filling stations in most states still sell petrol for less than $3 a gallon, well below the peak of 2008. In the UK, however, petrol prices are close to record highs, even though crude is well below its peak.
In any case, prices are as much an effect of the economic expansion as a threat to it. China, the fastest-growing economy, is alone expected to consume 520,000 b/d more this year than last, contributing a third of global demand growth, according to International Energy Agency estimates.
“You can't have a global recovery without the oil price recovering as well,” says Lutz Kilian, a University of Michigan economist who has studied the effects of oil shocks. Because demand is fuelling prices, “the only way to keep oil prices down is to remain in a recession, which hardly sounds attractive”.
The prospect of higher prices is still alarming to many observers. Olivier Jakob, of Swiss consultant Petromatrix, said in a note that the “recovery of 2009 was fuelled with crude oil at $62 a barrel, not at $90 a barrel or $100 a barrel. We fear that the latest run on WTI will be the kiss of death for a global economy that was trying to avoid the possibility of a double-dip recession.”
When oil prices last surged to $100 a barrel in late 2007, US and other rich-country consumers blunted the impact by drawing on home-equity loans and credit cards to finance petrol purchases, says David Greely, energy economist at Goldman Sachs.
“It does raise the issue if we're in a much more credit constrained world going forward, are consumers able to do that or will they be more sensitive?” he asks
最新这轮涨势似乎是受到人们对全球经济复苏的信心日增的推动，尽管多数交易员和银行家对供需基本面依然抱着谨慎看法。较为乐观的华尔街银行预计油价将进一步上涨，其中巴克莱资本(Barclays Capital)预计明年油价会涨到97美元，高盛(Goldman Sachs)预计会涨到110美元，摩根士丹利(Morgan Stanley)预计涨到100美元。
ConvergEx Group首席策略师尼古拉斯•克拉斯(Nicholas Colas)表示：“随着原油价格稳步走高，投资组合中的能源股敞口，很可能成为决定今年余下时间总体投资表现的一个关键因素。”
各国政策制定者似乎没有觉得不安。最近在墨西哥举行的国际能源论坛(International Energy Forum)上，各国能源部长感到欢欣的是油价波动减小，而非价格走低。美国国家经济委员会(National Economic Council)主任劳伦斯•萨默斯(Lawrence Summers)上周发表讲话时，哀叹美国过度依赖外国石油，但没有抱怨油价。
摩根士丹利大宗商品策略师侯赛因•阿里迪纳(Hussein Allidina)预计明年油价将达到每桶100美元水平。他表示，这将导致“石油负担”(oil burden)，即石油需求、价格与全球产出之间的一个函数，从去年底的2.8%升至4%左右。他说，发达经济体从中受到的损害将大于发展中经济体，因为后者正在推动全球增长，而且有能力发放燃油补贴。IMF估计，今年石油消费补贴总额将接近2500亿美元。