Outlook for Oil
Prices subsequently bounced back. Fluctuations in the US dollar have contributed to the volatility – oil is priced in dollars and therefore the dollar has a marked and sensitive inverse relationship with the price of oil. When the dollar strengthens, the oil price weakens, and vice versa. Opec expects global oil demand to increase by 1.4 million barrels a day (mb/d) during 2011, following a rise of 2.1 mb/d in 2010, although recent volatility makes it more difficult to forecast.
Opec’s basket of weighted average oil prices rose to reach an average of just over $118 (£73) per barrel, boosted by “ongoing developments” in the Middle East and North Africa and signs of improvement in global economic sentiment. In its most recent Economic Outlook, the Organisation for Economic Co-operation & Development (OECD) believes the global economic recovery is “firmly under way”.
The OECD expects the world economy to expand by 4.2% during 2011 and by 4.6% during 2012. However, the OECD warned against downside risks that include higher oil and commodity prices that could fuel inflationary pressures and ultimately tip some advanced economies into an environment of “stagflation”, in which inflation rises while economic growth stagnates.
According to the Automobile Association (AA), UK petrol prices have remained largely unaffected by volatility in oil prices. Between mid-April and mid-May, average UK petrol prices rose to 136.93p a litre, having reached a record 137.43p during the period, and the AA expects average petrol prices to decline further. The organisation believes that speculation in oil and fuel markets is artificially boosting commodity and wholesale prices, and is calling for a greater level of transparency in oil markets.
The International Monetary Fund (IMF) has suggested the world might have to face a period of increased scarcity of oil, compounded by rising demand from emerging economies. Although the IMF contends this scarcity will not necessarily constrain global growth, the outcome will depend on the world economy’s ability to manage a reduced overall supply.
The contents of this article should not be construed as advice and do not necessarily reflect our views. Independent Financial Advice should always be attained in order to assess your own individual circumstances.
