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EPHEMERAL ENERGY: World economy relying on unstable energy boost

For now at least, lower energy prices may indeed be a lifeline for a nervous world economy but it's a lonely positive and far from a stable one.

July 9, 2012 4:24 by



So, energy to the rescue? Well, maybe.


Long-term futures prices are certainly encouraging for policymakers trying to see through the fog. But the counterbalancing economic effects of spot prices go both ways and worries about oil supplies as much as demand come into play.


No sooner had last month’s EU summit lifted world markets generally, correlated spot oil prices perked back up too.


Fresh nerves about the Iranian nuclear standoff and concern about oil workers’ strikes in Norway pumped crude back briefly above $100 per barrel from lows below $90 last month.


And fears that new money printing from the developed-world central banks has for years now tended to “leak” into commodity markets and prices means the latest wave of monetary easing tends to at least underpin oil prices there too.


IMF economists poring over the question are quick to point out that the world economy has adapted relatively well to the four-fold increase in oil prices in a decade but acknowledge that supply disruptions and a pervasive market fear of long-term scarcity make price spikes higher a constant threat.


In a recent article on the impact of oil prices on world growth, IMF economist Jorg Decressin said growing consumption of oil revenues in oil-exporting countries that used to recycle windfalls back into western debt markets means this buffer for western economies may be weakened — not least because western interest rates are rock bottom now anyway.


“In the current situation, where global interest rates are low, increased global savings are of little help and oil price spikes would be even more unwelcome. The recycling of oil revenues does not work as well as before,” he wrote.

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