skip to main |
skip to sidebar
High Oil Prices, Iran and the Global Economy
As Middle East tensions continue to
increase, the United Nation’s
International Atomic Energy Agency reported last week that Iran is ramping up its production of high-grade uranium. As a result, oil prices continue to rise - a barrel of Brent crude oil traded up to $125 in Europe (+17% YTD), while WTI
oil in the U.S. traded at $109 a
barrel (+11% YTD) on Friday (see long-term price trend chart on page 3). Other contributing
factors include: 1) oil supply disruptions in Sudan, Syria and Yemen, 2) increased oil demand as the
global economy expands, 3) a possible increased gasoline demand during the
summer driving season and 4) speculative commodity trading activity.
MY
TAKE
Given oil’s pervasive use across the global economy, persistently
high prices may broadly increase product input costs (affecting corporate profits) and dampen consumer spending (wage growth still
remains stagnant) – factors that could stress the fragile economic
recovery. Investors have focused on the
benefits of reflation (central
bankers printing money) which has driven many asset prices higher. A period of elevated oil prices could move
the discussion toward the potential for inflation
(short term) and deflation (longer
term).
No comments:
Post a Comment