World oil markets hold their breath for a recession

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World oil markets hold their breath for a recession

Economy

By Diane Coyle Economics Editor

14 October 2000

The threat of war in the Middle East yesterday kept the price of oil at about $34 a barrel, raising the spectre of the world economy being plunged into a new recession.

With oil now selling at close to its highest level since the Gulf War, recent efforts by the Group of Seven industrial countries to bring down prices have been undone. For some economists, this raises the prospect of a repeat of previous oil shocks in 1973-74, 1979 and 1990. All were followed by steep economic downturns and a higher inflation rate.

Wall Street was calm yesterday but declines earlier this week saw billions of dollars wiped off the face value of world stock markets. New figures yesterday showed US wholesale prices had leapt last month because of higher oil costs. Andrew Oswald, Professor of Economics at Warwick University, said: "Oil is the most influential commodityin the world economy. If wenow have a war we've got real problems."

But most economists do not expect the price of oil to rise above $80 a barrel, its high-point of the mid-1970s, by today's prices. As Saudi officials yesterday reminded the market, oil exports are still flowing freely.

Ray Barrell of the National Institute of Economic and Social Research, said: "There's no cause for panic yet. Even a big oil price increase will have a small impact. The world economy is less dependent on oil than it was even a decade ago."

Low inflation and strong growth as well as more flexible and resilient Western economies are widely thought to make a deep recession less likely today.

The International Monetary Fund has expected strong world growth and low inflation next year. Professor Oswald, however, argues that even a mild recession will be painful after the current boom.

http://www.independent.co.uk/news/World/Middle_East/2000-10/oil141000.shtml

-- Martin Thompson (mthom1927@aol.com), October 14, 2000

Answers

I was really surprised at the calm on Wall Street yesterday, to end the week. The NASDAQ up 242 points? Just plain amazing.

-- Uncle Fred (dogboy45@bigfoot.com), October 14, 2000.

I wouldn't think Friday's upswing means anything at all. Even during the Great Depression the market had individual days like this.

A week-long look tells you a little more, and a month-to-month comparison tells you much more. Look at Sptember, then look at October to date. With all the uncertainties out there in this big old world of ours, is there any reason to think the market will suddenly cure itself?

-- Billiver (billiver@aol.com), October 14, 2000.


Why do so many of these "experts" keep saying that even a big increase in the price of oil will not effect things much? Why is it I simply don't believe this? Am I paranoid?

-- QMan (qman@c-zone.net), October 14, 2000.

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