Yesterday I blogged about the growing consensus among analysts that the price of oil was heading in only one direction: upwards. Barclays Capital, in fact, forecast it would hit $100/barrel this year, with Opec only taking action to increase production after a price spike.
Now the IEA has fired a warning shot across Opec’s bows with a stark warning from its chief economist, Fatih Birol. As Birol told the FT:
It is a very telling story. 2010 rang the first alarm bells and 2011 price levels could bring us to the same financial crisis times that we saw in 2008.
Just before the story appeared, oil began a two-day slump, the scale of which has not been seen for seven weeks. The reaction from Eugen Weinberg, head of commodities research at Commerzbank, was quoted by Bloomberg:
Today and yesterday the market has become more concerned about the fundamental situation in oil. The MasterCard report shows gasoline demand falling, while we still have ample inventories.
“Demand falling”, “ample inventories” – is it panic over then?
No. The recent dip seems to be based on a short-term fall in demand as Americans drive less in the heavy snow, added to some profit-taking. It says little about the direction of demand over the next year.
More importantly, while we may fixate on the magic $100/barrel number, it will take much less to trigger serious problems. If oil remains over $90/barrel for the rest of this year then the EU will be paying 2.1 per cent of GDP for oil imports – close to the 2.2 per cent level paid in 2008, just before the crisis.