ANALYSIS
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THE INVESTOR
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Over the past decade, the price of Brent crude has
been as high as $140 and as low as $40 a barrel
thanks to growth – or the lack of it – in the global
economy, speculative activity, the vagaries of
production and a dramatic increase in the
production of relatively cheap shale oil in the US.
The latest drop at the end of last year followed
these themes as investors worried that the
slowdown in the Chinese economy would lead to
lower demand for oil. Indeed, the International
Energy Agency has reduced its forecast for
demand in the current year, while OPEC members
have so far proved unwilling to reduce supply to
compensate for the higher US production.
While the fall in the oil price could be bad
news for the pace of exploration in higher-cost
areas like the seas around the UK, other parts of
the economy could find the fall positively
stimulating. Already, consumers are feeling the
More than six years after the start of the financial
crisis, the global economy still looks some way
from robust recovery. Growth is anaemic at
best in Europe and Japan, China is slowing
and emerging markets have proved to be less
resistant to the downturn than had been hoped.
Deflation remains a threat in Europe and has not
been convincingly eradicated in Japan.
The UK and the US are a bit more positive,
with growth looking reasonably healthy, but
authorities in both countries are clear that
they are well aware of the risks that the fragile
recovery could be derailed. Here, Bank of
England governor Mark Carney (below) has
made it clear that interest rates will not rise
until the economy is displaying far more robust
signs of growth. Across the pond, meanwhile,
the US has managed to wean its economy off
ENERGY
MIXED FORTUNES AS BRENT CRUDE CONTINUES SLUMP
Consumers and importers see benefits of falling cost of oil
GLOBAL ECONOMY
WORLDWIDE RECOVERY STILL IN A FRAGILE STATE
UK and US show signs of health, while global policymakers look to stimulate growth
benefits and, assuming they spend at least part
of their energy bill savings, that should be
positive for demand. Industrial energy users are
enjoying similar savings – and, for intensive
energy users like airlines and other transport
companies, the benefits are considerable.
Some of the slowing global economies
are also among the largest oil importers,
including much of Europe, Japan and India.
A reduction in their production costs may provide
a much-needed stimulus.
The tumble in the Russian ruble and its
stock market shows how severe the impact
can be on the big oil-producing countries.
There is also the threat that falling oil prices
could exacerbate the problem of low and falling
inflation across Europe, although economists
are optimistic that the stimulus in demand will
counteract that threat.
its quantitative easing programme of market
support without unduly unsettling its own or
global markets. While a rise in US interest rates
may come more quickly than they will here, the
pace of rises is likely to be very slow.
Indeed, policymakers everywhere seem to
be well aware of the need to keep encouraging
recovery. Interest rates have been cut in China,
Europe is doing its bit to stimulate recovery,
albeit still rather more sedately than some would
like, and the Japanese prime minister even risked
a general election to secure backing for his
recovery programme.
The fall in the price of oil and some other
key commodities may not help the fight against
deflation but should mean consumers have more
to spend on other things, while companies will
also be enjoying lower production costs.
