Oil ministers from both Venezuela and Libya said they did not believe $100 oil prices would do any damage to the world economy. Libya’s minister believes that crude at $120 a barrel would not cripple worldwide GDP expansion.
Fortunately, Libya and Venezuela are among the hawks in OPEC. Each nation has a troubled economy which could threaten the fate of their governments.
Crude remains below $100 but it will not take much to cause a sharp rise above the century mark. Demand in China, which is now the largest net importer of oil, continues to increase. A cold winter in the Northern Hemisphere will move up demand for heating oil.
Recent interruptions in supply, even short ones, have moved crude higher in a matter of days. This happened with the Trans Alaska Pipeline leak. OPEC nations such as Venezuela, Nigeria, and Iran and politically unstable, another potential reason for an interruption in flow.
Many economists believe that global GDP growth will be harmed if crude tops $100 and remains there for months. It is hard to image what the effects would be if oil hit $120 for an extended period.
The global economy has begun to recover and organizations including The World Bank and IMF expect this to continue at a pace of as much as 4% globally. Crude oil prices cold undercut those projections all by themselves.
Douglas A. McIntyre