Crude Oil Prices Rebound No Threat to Global Economy
A 50 percent recovery in crude oil prices raises concerns about its impact on global economy, but analysts see more chances of a fall in prices than for a rise.
“We do not think that a rebound in oil prices to US$60-70 per barrel represents a major threat to the global recovery,” said Capital Economics in a note on Thursday.
It says current level of prices is far below the average of US$110 (for Brent) seen between 2011 and mid-2014, benefitting the consumers. Besides, the current rebound in oil prices is expected to ease pressure on the producers to a little extent.
Brent crude oil prices have recovered to nearly US$70 per barrel, up US$24 from its January low of US$46 per barrel.
The recent rebound in oil prices has largely been supported by falling US oil production over the past three months, as drillers idle their oil rigs due to weak prices.
However, many analysts say that higher prices will attract the US oil drillers to resume production.
“Some US oil producers have announced their intention to scale up their drilling activities again at higher oil prices,” said Commerzbank Corporates & Markets in a note.
Capital Economics expects the US drillers to increase the active rig count again in the short-term leading to sudden rebound in the US production.
Further, the oil market is already oversupplied even before Iran starts exporting oil once the sanctions are eased.
Oil prices are likely to come under pressure going into the meeting of the Organisation of the Petroleum Exporting Countries (OPEC) on 5 June in Vienna.
In its previous meeting in November last year, the OPEC had rejected the proposals to cut oil production by 30 million barrels per day, which accelerated the decline in oil prices.
“OPEC delegates have already hinted that no change to production policy is likely at the cartel’s meeting in early June, meaning that OPEC will continue to produce more than is needed,” Commerzbank added.
The dollar is expected to strengthen again on impending US central bank interest rate hike, putting pressure on the oil prices.
“We think that oil prices are now more likely to fall than to rise further over the rest of the year. Our end-2015 forecast for Brent remains US$60,” Capital Economics added.
Source: International Business Times
