The oil price collapsed last Monday after an acrimonious meeting of the Opec exporters’ cartel. Having been above $105 a barrel as recently as June 2014, US crude fell to $37.65. That represents a 64pc drop in just 18 months – to the lowest level since the worst of the global financial crisis in February 2009.
Oil plunged again last Thursday, moving below $37 – amid further evidence that Opec’s 12 member states, from the mighty Saudi Arabia to tiny Ecuador, are cracking up. After staying well above $40 a barrel for months, crude has now crashed decisively through that psychological lower bound. Now it’s been breached, there’s widespread speculation crude could tumble much further – maybe even as low as $20.
Attempting to forecast the oil price is a mug’s game. But that hasn’t stopped me in the past (ahem!) The reality is that crude is so important to modern life, and the path of the global economy, that for all the pitfalls of prediction, any serious economist needs to have a view on the future cost of the black stuff. Pivotal not just in terms of energy and transport, but also the manufacture of vital inputs from polymers to fertilizers, the dollar oil price is perhaps the world’s single most important economic variable.
My view is that the current price dip is temporary, partly illusory and that oil is now heavily over-sold, having fallen way below its fundamental value. As such, I’d venture that, in the absence of a 2008-style systemic meltdown on global markets, $100-a-barrel oil will return by the middle of 2015.
UK car sales are now the second-highest in Europe. I know that’s true because I repeatedly heard it on a variety of national news bulletins last week and read it on the front page of several respected business newspapers. Yet it’s only true up to a point.
No-one is denying that 2.3m new cars were sold in Britain in 2013, according to the Society of Motor Manufacturers and Traders. That compares to 2.9m cars bought in Germany and marks a 10.8pc increase on UK car sales the year before.
Oil prices are on the up. Since early June, Brent crude has surged from just over $100 to reach $108.7 per barrel last week – a three-month high. West Texas Intermediate, the US oil benchmark, meanwhile hit $107, a level not seen since March 2012.
Rising energy costs hit consumers and firms, hinder growth and also stoke up inflation, especially in an oil-importing country like the UK. It’s particularly concerning that crude is rising despite growing evidence that the global economy is once again starting to slow.
For several years now, storm clouds have loomed large over much of the Western world. The sub-prime debacle dealt the “advanced” economies a shocking blow. With the US still sluggish, and Western Europe back in recession, four years on from the “credit crunch” the economic climate remains harsh.
The West’s response to sub-prime has, in my view, made our predicament even worse. Faced with widespread institutional insolvencies and high debts, governments have shielded politically powerful banks from reality, while indebting themselves, and so us, even more.
Since last weekend’s eurozone “grand summit”, the headlines have been positive and, in the official photos anyway, the main players appear to be smiling. As such, the global equity rally goes on. Behind the rictus grins, though, the gloves remain off, the rhetorical daggers still drawn. Having launched the biggest sovereign debt restructuring in history, Athens now faces the Herculean task of persuading holders of Greek bonds to accept a “voluntary” hair-cut.
Creditors are being asked to swap their bonds for a combination of new short-term instruments, issued by the European Financial Stability Facility, and longer-term Greek government debt. If half of them agree to take the hit then, under “collective action clauses” approved by the Greek Parliament, the deal could be forced on all bond-holders.