The last few days have seen something of an explosion in mentions of a one hundred-dollar price for crude oil. Usually they mean the price for Brent Crude Oil which went above US $86 per barrel last week and is now around US $84. This means that we have seen a 50% rally over the past year for it. Some care  is needed as the other main benchmark called West Texas Intermediate is around ten dollars lower at around US $74 per barrel. The last time we saw the spread between these two indices widening then it looked like the bank trading desks and especially the Vampire Squid were to blame and it went as wide as twenty dollars. For those wondering what the Russians get then the Urals benchmark is around 4 or 5 dollars lower than Brent but what always amazes me is the price that Canada get. The price of Western Canada Select is US $25.20 although it was as high as US $58 in the summer. Whatever the cause it is a very odd price for a type of oil that is relatively expensive to produce.

Economic effects

The Far East

The Financial Times took a look at some research on the impact here.

According to Citi’s Johanna Chua, Asian countries suffer the most when oil prices rise because, aside from Malaysia, most are net oil importers. Singapore runs a sizable 6.5 per cent oil and gas deficit, followed closely by Pakistan, Thailand, Sri Lanka and Taiwan. Indonesia and Vietnam manage slightly smaller deficits of roughly 1 per cent.

Given this exposure, many of these economies see the largest inflation swings when oil prices rise…….Sri Lanka, the Philippines and Vietnam lead the pack, with Thailand, India and Taiwan rounding out the top six:

They do not say it but we are of course aware that especially these days inflation rises can have a strong economic impact via their impact on real wages. Of course if an economy is vulnerable higher oil prices can push it over the edge and it has hit Pakistan.From the International Monetary Fund or IMF.

The fast rise in international oil prices, normalization of US monetary policy, and tightening financial conditions for emerging markets are adding to this difficult picture. In this environment, economic growth will likely slow significantly, and inflation will rise.

Some of the impact of the IMF arriving again in Lahore feels eye-watering.

The team welcomes the policy measures implemented since last December. These include 18 percent cumulative depreciation of the rupee, interest rate increases of cumulatively 275 bps, fiscal consolidation through the budget supplement proposed by the minister of finance, a large increase in gas tariffs closer to cost recovery levels, and the proposed increase in electricity tariffs. These measures are necessary steps that go in the right direction.

Whether the population in what is a poor country think this is in the right direction is a moot point but as a cricket fan let me wish the administration of Imran Khan well. Sadly just as I type this the price of oil has just risen another 8.5% via this morning’s devaluation.

What the research above seems to have skipped over to my mind is the impact on China as according to WTEx it was 18.6% of the world’s oil imports totaling US $162 billion last year. Its own production is in decline according to

Crude oil production alone fell by an annual 4 percent to 191.51 million tons — or about 3.85 million bpd in 2017 — to the lowest in nine years, due to maturing fields and few viable new discoveries at home.

So we are left wondering how strong a factor the higher oil price was in the monetary easing in China last weekend?

First World

The FT gives us a familiar list of those it expects to be impacted.

For Bank of America Merrill Lynch’s Ethan Harris, Japan, Europe and the UK are “clear losers,” with growth there coming under pressure by 0.2 to 0.5 percentage points next year. Not only do all three import their oil, but also, households in Europe and the UK save little, leaving them with smaller nest eggs to buffer price increases.

I am not sure about the latter point but much of this is familiar with Japan being a big energy importer and Europe not a lot different.The UK became a net importer a while back although there have been some changes recently. What I mean by that is that according to the official data we are importing less and producing slightly more. Firstly that is not quite the picture on North Sea Oil we are sometimes told which did fall but seems currently stable whereas we are using less (-7.4% in the latest quarter). Perhaps it is the impact of a growing share of renewables in electricity production which is 20% or just under 7 Gigawatts as I type this.


The IMF researched the impact of a higher oil price last year.

A 10 percent increase in global oil inflation increases, on average, domestic inflation by about 0.4 percentage at impact. The effect is short-lasting—vanishing two years after the shock—, similar between advanced and developing economies and tends to be larger for positive oil price shocks than for negative ones.

I am sure that nobody is surprised that there is more enthusiasm for raising than there is for cutting prices! If we translate that into what we have seen over the past 12 months then the IMF would expect to see a rise in inflation of 2% due to this. More accurately we should say up to as not all prices have risen as much as Brent Crude.

The Winners

There are obvious winners here such as Saudi Arabia and several other Gulf States, Russia, Canada, Brazil and Mexico. Some African countries such as Ghana and Nigeria will benefit and the Norwegian sovereign wealth fund will have to invest even more money. But as it is American foreign policy which has driven the reduction in supply mostly via pressure and embargoes on Iran it is rude to point this out?

Crude oil production in the U.S. shale patch will hit 7.59 million bpd next month, the Energy Information Administration said in its latest Drilling Productivity Report. This is 79,000 bpd more than this month’s estimated production. ( )

I have written before that due to their high debts this industry is driven by cash flows which currently are pouring in.Is it a coincidence that US foreign policy is so beneficial for them? Or if we go deeper the role of QE and low interest-rates in the shale oil business model.


Some mathematical economists may be sure there is no impact as overall this is a zero sum game. Also for central bankers the oil price is non-core but in reality it does have an impact as oil producers spend less than oil importers on average.

 If oil prices head above US$100 a barrel, it could shave 0.2 percentage points from global economic growth next year – but this hinges crucially on the US dollar, according to Bank of America Merrill Lynch. ( Straits Times)

I think it might be more than that but the issue is never simple. Also they are right to point out that the US Dollar has strengthened when the convention is for it to fall with an oil price rise. Continuing my theme above is it rude to point out that the US military industrial complex is likely to be a major beneficiary from the extra cash flowing into the Gulf?

There is a catch here which is that so far we have seen “experts” promise us US $200 oil and US $20 oil and we have seen neither? So perhaps we should be looking at the economic effect of an oil price fall.Meanwhile one likely winner from the oil price rises has managed via extreme incompetence to be a loser.