Kate Mackenzie More gloom about oil prices and the recovery

Francisco Blanch of Merrill Lynch-Banc of America has again been warning that high oil prices could dampen an economic recovery. In the FT he writes:

“A spike in oil prices above the $100-a-barrel level could create significant headwinds for the global economy,” he adds, warning that a sharp increase could also lead to a repetition of last year’s price collapse.

Despite this, he says, the lack of fundamental strength means a spike is not imminent – but $100 a barrel could be exceeded late next year.

Blanch and his team earlier this year figured that $80 a barrel would be difficult for OECD countries, and $90 for the emerging markets.

Meanwhile Nouriel Roubini has also been talking explicitly about oil prices fears. This from Index Universe/SeekingAlpha on Friday:

Index Universe (IU.com): You’ve said that you’re worried we’re already sowing the seeds of the next crisis. Where do you see that most directly?

Dr. Nouriel Roubini (Roubini): Well in commodities, I look at oil prices. They fell from $145 last summer, came down to $30 earlier this year and now they’re back close to $80. But if I look at the fundamentals of demand and supply, demand is down to 2005 levels, supply and inventories are at all-time highs. In my view, the movement in oil prices is not fully justified by the fundamentals.

There are improving fundamentals. There is a global recovery. But that justifies oil going from $30 to maybe $50. I think the other $30 is all speculative demand feeding on it—speculators and herding behavior. Last year, when oil was at $145, that killed the global economy. I worry that oil is going to go up above $100 for reasons that have nothing to do with the fundamentals of supply and demand. Oil at $100 would have the same negative effects on the global economy as oil did at $145 last year.

Related links:

Are oil prices threatening the world economy already? (FT Energy Source, 01/06/09)