What Does $100-a-Barrel Oil Mean for the Economy?

Over the past few weeks a series of events has prompted oil price forecasts of US$100 a barrel, which would mark the highest figures seen since 2014. Analysts warn that for the world economy, the drastic price shift would create a series of winners and losers.

Fuel exporters would emerge as victors, enjoying bumper returns which would boost company profits and increase government funding. In contrast, oil consuming nations would see a significant increase in pump prices which would be passed on to drivers. In turn, this would fan inflation and potentially hinder demand.

Bloomberg predicts less global growth

Bloomberg Economics put a positive spin on the US$100 a barrel forecast, predicting that the figure would translate to less global growth in 2018 than occurred after the 2011 surge. This is partly because global economies are now less reliant on oil. The booming US shale industry would also provide a financial cushion.

“The shale revolution, lower energy intensity, and higher general price levels mean the impact will be smaller than it once was,” reads a Bloomberg Economics statement led by Jamie Murray. “The price of a barrel will have to go much higher before global growth slips on an oil slick.”

Rising oil prices set to hit household incomes

That said, there are major concerns over the impact rising oil prices will have on household incomes and consumer spending. Europe is especially vulnerable as many of its nations are oil importers. As the world's biggest oil importer China is also at risk, with experts warning prices of US$100 a barrel could trigger a surge in inflation. Globally, an increase in oil prices could put pressure on the accounts of high-consumption countries like India, Taiwan, Chile, Turkey, Egypt and Ukraine, as well as make their economies more vulnerable to climbing US interest rates.

The big winners will be major oil-producing nations like Saudi Arabia, which churned out almost 21% of gross domestic product in 2016. Emerging economies like Nigeria and Colombia could also reap the benefits, with an increase in oil revenues helping to repair national budgets and relieve account deficits. This would allow governments to ramp up spending and spark investment.

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