Baku, Azerbaijan, Jan.15
By Leman Zeynalova – Trend:
Oil prices are expected to fall back from their three-year high in the coming months due to increasing supply, according to the UK-based consulting company Capital Economics.
“But even if prices stayed around $70 per barrel, they would not endanger the global economy. The $24 rise in price since mid-2017 has reflected the strength of the world economy, the extension to OPEC’s deal to restrict output and various geopolitical tensions, including the recent civil unrest in Iran. We think that prices will fall this year,” according to the analysis obtained by Trend.
The analysts of Capital Economics believe that the protests are unlikely to hit output in Iran.
“After all, even six months of unrest following elections in 2009 had little impact on oil production. What’s more, high prices are likely to prove self-correcting by leading to an increase in supply, particularly in US shale, and by undermining OPEC compliance with its output quotas. As such, we think the price of Brent will end the year at around $55 per barrel,” said the report.
If prices were to remain at around $70 per barrel throughout the year, the global economy would cope well, according to the consulting company.
“Admittedly, surging oil prices in 2007 and 2010 coincided with slower consumption growth. But on these occasions, oil prices were a lot higher and the economic backdrop was more fragile. We would need to see much higher oil prices, combined with faltering consumer confidence, in order for a marked slowdown in household spending growth to take place in 2018,” the analysts believe.
Any negative impact on GDP growth from high oil prices would be at least partially offset by stronger investment, according to the consulting company.
“Mining investment is more sensitive to changes in oil prices than it was before the “shale revolution”. Just as the collapse in prices in 2014-15 caused investment to slump and drag on GDP growth in 2016, higher prices would support investment in the US and other oil-producing economies,” said the analysis.
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