Kiran Stacey BarCap: The world economy can tolerate rising oil prices

The global economic recovery is unlikely to be threatened by rising oil prices, Amrita Sen, oil analyst at Barclays Capital, has said.

Answering Energy Source readers’ questions, Sen said she expected a “longer term increase in prices” with Opec spare capacity stretched and energy demand continuing to rise. But unlike other forecasters, she said such a rise would not threaten demand, with eastern consumers willing to pay more for their energy and western ones dipping into their savings.

She said:

Stretched Opec capacity is key. Once that buffer starts eroding, the ability of the oil market to absorb supply shocks can reuce sharply, with the opposite effect on price volatility and market sentiment.

In short we can expect a longer-term increase in prices unless a new technology comes along to change the way we use energy.

But she added:

Even at current price levels of $120/bbl, there does not appear to have been any significant permanent change in consumers’ consumption patterns, at least not yet.

She said that the transportation sector, which accounts for 50 per cent of global oil demand, was less price sensitive than others, as are non-OECD consumers, who make up the bulk of projected demand growth. Meanwhile in the west, she thinks individuals and businesses will be willing to let their savings take the strain as oil prices rise.

Such a rise will also trigger new technologies which could help tap into new reserves and so rebalance the market.

Her message echoes that of the International Monetary Fund, which has said surging energy prices will not constrain global growth.

The full transcript of her Q&A session will be published on Energy Source later today.