The average oil price for 2006 is forecast to be in excess of $55 per barrel, however the impact of global growth will not be as dramatic as the 70’s says Mark Appleton, chief investment officer at Barnard Jacobs Mellet Private Client Services.
This is evident in the United States GDP growth forecasts which have only been pulled back marginally from 3,8% to 3,5%, Appleton says.
He argues that the higher prices will result in increased supply and a dampening in demand which should result in oil averaging $40-$45 per barrel over the medium term. Energy efficiency also needs to be taken into account.
“The developed world has become increasingly less oil intense. Oil intensity as measured by oil consumed per unit of GDP, has declined by 45% since 1970.
However developing countries have become increasingly energy hungry with oil intensity increasing by 20% over the same period.
Nevertheless overall the world is more energy efficient,” says Appleton.
Appleton says from a South African point of view we have a partial buffer against high oil prices.
“As long as the oil price is primarily demand driven then commodity prices will also be well supported when the oil price is high. High commodity prices support our currency and this in turn mitigates against the impact of high oil prices to some degree. At the same time our balance of payments is also not as badly affected as other oil importing nations as a large part of our fuel needs are supplied by Sasol.”
Appleton says it is interesting to note that the inflationary impact of higher fuel prices is slightly higher in the US than Europe due to the fact that fuel is heavily taxed in Europe and therefore the higher oil price has a smaller percentage impact on the pump price.
“Europe is also better off when considering the positive trade spin-offs when exporting to the increasingly wealthy oil producing nations.”
Europe’s exports to the Middle East as a percentage of GDP is 0,8% compared to 0,2% for the US. – I-Net Bridge