If oil price continues to surge, it could affect global economy: U.S. expert

March 8, 2011 12:17 pm 

CHICAGO, March 8 — While it is still too early to say that the increasing oil price could cause global economic slowdown, if it continues to surge, the global economy might face serious challenges, says a U.S. expert on Monday in Chicago

Robert Johnson is director of economic analysis for Morningstar Inc., a provider of independent investment research and has more than 20 years of investment experience, including both buy-side and sell-side assignments as a research analyst.

When commenting on the surging oil price, Johnson told Xinhua in an exclusive interview, "Certainly the crude oil price has been up recently but we are not all the way back to the highs of 140 and 150 U.S. dollars a barrel as we had in 2008."

He explained, "Obviously there is an increasing demand issue since the economy in the world is getting stronger. That is putting pressure on oil price. Then we have the other supply issue coming in when North African countries started having problems. It created more supply pressure which causes price to go up."

However, he estimated that if the political situation becomes stable in North Africa and the Middle East, oil price could easily come back down again.

"Because this is created by artificial factors, not just by supply and demand," he added.

When asked about the impact of oil price increase on global economy, he said, "It is still a little early to say if this could cause global economic slowdown. It depends on how long and how high the price stays. But clearly oil is an important part of everyday spending. "

He further noted, "We are probably still ok right now. However, if we start moving to 120 and 130 U.S. dollar per barrel, then we start having trouble with the economy. We are ok right now but it starts having impact on consumers who have to buy gasoline at the pump."

Regarding the impact on the U.S. economy, Johnson pointed out, "The oil price has not really affected U.S. economy yet. I was surprised to see that the February retail sales data was relatively strong. It takes time for this to have impact on consumers."

So what actions should be taken to deal with this challenge? Johnson suggested, "For developed countries, most of them should let the market deal with the issues. We are not at a dangerous point. As for some emerging markets where they use more fuels, it could affect more individual consumers. Some of those countries should consider posing price restrictions."

If the oil price continues to go up, then consumes have to stop buy something else, such as buying fewer cloth or postponing buying a car. Then it begins having broader impact on economy. A few pennies won't make a difference, but if you are talking about going up a dollar per gallon, then we are talking about some real money in the economy. "

Besides the usual suspects such as airlines and truck transportation that are affected by high oil price, Johnson said that surprisingly the conservative stocks such as packaged goods and consumer goods are particular affected this time.

"They have to buy agriculture products with higher price. These products are usually bulky which become more expensive to ship. On the other hand, consumers have less money to spend so they can not raise their price to offset the rising cost," he said.

On the other hand, the natural gas industry benefits from the oil price increase, according to Johnson. "There are some opportunities in natural gas which we have fair amount in the U.S. because of new discoveries."

Looking into the future of oil supply in the world, Johnson said, "Oil takes time. If you think about long term like 10-20 years, then we have big oil discoveries in Brazil, and we have Russia and some parts of the U.S. as well. However in a short term, it is hard to move around." (PNA/Xinhua)

LDV/mec

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