Wednesday, March 10, 2021

Oil Flirting With $70 Challenges World’s Economic Recovery

 The spike in oil prices has focused attention on how the steady rise in energy costs is threatening to create a drag on the global economic recovery and stoking fears of inflation.

Bloomberg

After surging more than 30% this year on coordinated supply constraints by major exporters and demand returning from the depths of Covid-19 crisis, a missile attack Sunday on a key Saudi Arabian export facility sent Brent crude, the international benchmark, above $70 a barrel for the first time since January 2020.

While prices have since pulled back, the impact on inflation and the overall global recovery depends on how sustained the underlying rally proves to be.

For economists, the cause of higher prices is what matters, rather than the price itself. Rising energy costs on the back of strong demand normally indicate robust and resilient growth, while a surge from crimped supply could weigh on a recovery. Morgan Stanley economists estimate that oil would need to average $85 a barrel for the global oil burden to rise above longer-term averages.

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