$80 pb is ‘dangerous’ to the world economy
During an oil conference in London last week, international oil countries were warned about the danger of oil prices rising above the level of $80. It is a red-line and a warning sign that such a level will lead to weakening of the world economy and possibly recession.
Oil companies are stating that they can live and manage if oil is at levels between $55 and $65 per barrel. They have cut their costs and done their homework to remain sustainable at such a level. Therefore, any level above the aforementioned will mean fresh money for their shareholders, and will enhance and enlarge their core investments in oil and gas.
They are also warning against any further escalation of oil prices, which would lead to lower demand and cause prices to fall below $30 per barrel. In fact, the oil demand could collapse or witness zero growth. At the same time, world economy, the protectionist mood and tariff battle between the two major world economies
– USA and China – could also easily lead to weakening of the economic growth.
The warning is genuine, but oil-producing countries are unable to do anything as the control and price escalation are within the market. They can pour as much oil as possible, but the current political environment leads to speculation and takes advantage of the market turmoil, with uncertainty surrounding the supply situation.
There are unknown factors that impose pressure on oil prices such as the loss of more than 800,000 barrels of oil in Florida because of Hurricane Michelle, or disruption from other OPEC or non-OPEC countries.
The good news comes in the form of strong oil prices above the level of $60 a barrel. International oil companies can offer more investments and carry out oil and gas explorations, thus going back to the situation of 2014 with total investments going beyond $1 trillion against their current level of $600 million.
Oil producing countries can benefit too from searching for a new source of income instead of solely depending on oil for revenues; or perhaps by enhancing the standard of living, investing oil money in better things such as education, health, and creating more jobs.
The level of $80 is also dangerous, as it can create a benign environment for corruption, relaxation and neglect in seriously searching for better alternatives to oil.