{"id":59621,"date":"2012-03-08T11:36:36","date_gmt":"2012-03-08T00:36:36","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/03\/08\/at-what-price-does-oil-become-dangerous\/"},"modified":"2012-03-08T11:36:36","modified_gmt":"2012-03-08T00:36:36","slug":"at-what-price-does-oil-become-dangerous","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/03\/08\/at-what-price-does-oil-become-dangerous\/","title":{"rendered":"At What Price Does Oil Become Dangerous?"},"content":{"rendered":"

\n\t– Danske<\/span> Bank sees current oil price pressures as temporary
\n\t– Longer lasting gains would have a negative impact on growth<\/strong>
\n\t <\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tNote: All oil prices quoted refer to Brent crude.<\/p>\n

\n\tWith oil prices again on the rise, having increased by US$15 per barrel over the past month, Danske<\/span> Bank warns of a new risk to the global economy as higher prices have the potential to de-rail economic growth. <\/p>\n

\n\tDanske<\/span> notes the rise in the oil price to date has been moderate, meaning no change to the analysts' expectation oil prices ease off soon and average around US$120 per barrel for the remainder of 2012. This is because oil price rises driven by geopolitical tensions tend to be temporary and prices fall back once the tensions are resolved.<\/p>\n

\n\tBut given a clear risk oil prices could continue to move higher given ongoing tensions in Iran and continued recovery signals in Asia and Europe adding to upward pressures, Danske<\/span> has attempted to assess how much it would take to impact on the current economic recovery.<\/p>\n

\n\tThe issue is complicated, Danske<\/span> pointing out oil prices hit growth in a number of ways such as price inflation, an erosion of real income growth, higher transport costs and higher input costs in production. Standard multipliers suggest a US$10 per barrel rise in the oil price would trim US GDP by around 0.5% after one year and eurozone<\/span> GDP by around 0.3%.<\/p>\n

\n\tWhat is driving the increase in oil prices is also important, as Danske<\/span> notes a supply shock is likely to have a bigger negative growth impact than would oil prices being driven by strong demand. <\/p>\n

\n\tAn oil price above US$140 per barrel would be enough for a material impact on the economy according to Danske's<\/span> analysis, as such a price would create a soft patch in the US of growth below 2% while prolonging a period of weak growth in the eurozone.<\/span><\/span> China would be least affected and global growth would be expected to recover in 2013. <\/p>\n

\n\tShould the oil price continue to rise and hit US$170 per barrel, Danske<\/span> suggests the US economy would experience a sharp slowdown and growth would come in below 1.0% for the rest of the year. The eurosone<\/span> recession would also be prolonged, while Chinese growth would likely remain at a reasonable level.<\/p>\n

\n\t\"\"<\/p>\n

\n\tAssuming a moderate rise scenario to around US$140 per barrel, Danske<\/span> expects the Fed would likely refrain from QE3<\/span> as weaker growth would be counter-weighed by higher inflation. The European Central Bank (ECB<\/span>) would also be unlikely to hike rates in such a scenario.<\/p>\n

\n\tIf the sharp rise scenario played out Danske<\/span> suggests the Fed would move on QE3<\/span>, as the slowing of the economy and rising unemployment would dominate the inflation concern of higher oil prices. The ECB<\/span> would also refrain from hiking rates in such a scenario, while in China monetary policy would be expected to ease more to accommodate growth. <\/p>\n

\n\tWith respect to current conditions relative to 2011 when the global economy also slowed down as oil prices rose sharply, Danske<\/span> suggests there are some differences this time around as food prices are not rising in tandem with the oil price at present and last year the Japanese earthquake contributed significant disruptions to the global economy.<\/p>\n

\n\tAs well, Danske<\/span> notes the euro crisis has eased significantly from what was the case last year, while over the past several months there has been increasing evidence of a recovery in the US economy. 
\n\t <\/p>\n

\n\tTechnical limitations<\/strong><\/p>\n

\n\tIf you are reading this story through a third party distribution channel and you cannot see charts included<\/span>, we apologise<\/span><\/span>, but technical limitations are to blame.<\/em><\/strong><\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

While recent oil prices rises have been moderate Danske Bank warns significant further gains would impact on global economic growth.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[24],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59621"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=59621"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59621\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59621"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59621"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59621"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}