LONDON: Oil could climb well above $150 a barrel before it tips the developed world into recession, leaving some scope for producer nations to carry on earning petrodollars without destroying fuel demand.
Representatives of consumer countries have said prices are already high enough to dent fuel use, although the International Energy Agency and OPEC both kept their 2011 oil demand growth forecasts unchanged in reports this week.
The rule of thumb for an increase that would cause a recession, with major implications for fuel demand, is an annual surge of 100 percent, according to some analysts, which would take the market well above the 2008 record of $147.27 for US crude.
"The danger is that if prices keep rising, any growth slowdown will be more severe, leading to a great chance of recession. This has been common following 100 per cent oil price rises," said Richard Batty of Standard Life Investments.
So far the rise has been less than half of that.
Brent crude, which has led the current rally, hit a two and a half year high of just above $127, up 49 per cent, from a year ago and about 40 per cent higher from the end of 2010.
Other pointers, used by Batty and other economists, are that each $10 per barrel rise, if sustained, adds 1 per cent to inflation and shaves 0.5 per cent off gross domestic product.
DEEPAK KUMAR
PGDM
Representatives of consumer countries have said prices are already high enough to dent fuel use, although the International Energy Agency and OPEC both kept their 2011 oil demand growth forecasts unchanged in reports this week.
The rule of thumb for an increase that would cause a recession, with major implications for fuel demand, is an annual surge of 100 percent, according to some analysts, which would take the market well above the 2008 record of $147.27 for US crude.
"The danger is that if prices keep rising, any growth slowdown will be more severe, leading to a great chance of recession. This has been common following 100 per cent oil price rises," said Richard Batty of Standard Life Investments.
So far the rise has been less than half of that.
Brent crude, which has led the current rally, hit a two and a half year high of just above $127, up 49 per cent, from a year ago and about 40 per cent higher from the end of 2010.
Other pointers, used by Batty and other economists, are that each $10 per barrel rise, if sustained, adds 1 per cent to inflation and shaves 0.5 per cent off gross domestic product.
DEEPAK KUMAR
PGDM
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