Oil prices can stop the economic recovery
Best Growth Stock – We experienced first hand how record oil prices three years ago contributed to the biggest economic slowdown since the great depression. Higher price of energy costs turned to be one of the biggest nightmare that the economy has faced over the last decade. It affects not only basic service such as electricity costs or the gas we pay at the pump but its effects is felt from the micro economics to the macro economic.
You may be asking yourself, Why oil prices keeps getting higher? There are several factors that are affecting its price and we will analyze them in the concept of the current economic events that are taking place in the world. You need to remember that the oil is traded worldwide and is priced in the US dollar. The current factors that are influencing the oil prices are China’s economic growth, the weakness of the dollar against other currencies and the economic recovery.
In every economy prices are set by the demand and the offer that is available for the product. China’s economy and GDP keeps growing at an exponential rate that is even causing domestic problems in China with the inflation that they are suffering. That huge demand that China has encounter for energy has create a shortness of supply form the OPEC. At the same time the OPEC has refused to increase its oil quota by saying that it is speculation of the market the prices above $100 for the oil barrel. Neither to say that oil companies and producing countries can manage to produce outstanding profits out of the high oil prices. The future of oil production is not very good, as the OPEC will aim at more than $100 per barrel with no increase in production.
The dollar keeps its weakness against other currencies mainly the euro. Since the oil is traded in dollars any decrease in the value of the currency will create inflation in the value of the oil. As the USA keeps recovering from the recession more money will be in the hands of the business and lenders. Eventually this will keep a low inflation and higher economic movement. But for how long this can keep going with no risk for deflation of the economy? It remains to be seen, as other countries such as China will be putting more money in the street to cool down its growth. This may have a negative effect in the oil industry and might be the biggest factor to curb in the oil price.
We have to be careful as prices above $100 will create a boomerang effect in the economy as economic spending by consumers will be affected by the higher energy prices. This will have a domino effect in the economy as less people will be buying goods or spend in leisure activities since they will have less money available for their daily expenses. This will hurt all kind of business and we may go back to a double recession, which will be very dangerous to the global economy.
Category: Business News
