The current surge in oil prices is mainly related to supply-side factors, such as the extension of the OPEC agreement to curtail supply, bottlenecks in Venezuelan petroleum production and the US withdrawal from the Iran Nuclear Deal, according to the analysis team at Rabobank.
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“Our official Rabobank forecast is that oil prices will come down from current highs and flatten throughout the year. The expected increase in oil demand and production cuts will be met by higher onshore production in North America. Moreover, Saudi Arabia and Russia have recently signaled to gradually step up production in the second half of 2018.”
“However, geopolitical stress following from, for instance, the re-election of President Maduro in Venezuela and anticipated US announcements to economically quarantine Iran could disrupt the oil market in the near future and result in renewed oil price volatility. On Tuesday 29 May, Norwegian Minister of Petroleum and Energy Terje Soviknes said that it is far from unlikely that we will see prices go up to $100 again.”
“We use the macro-econometric model NiGEM to assess the impact in two oil price scenarios on different economies in the world. In a mild scenario, oil prices climb to USD 90 per barrel for some quarters. In a severe scenario, prices rise to USD 115 per barrel and remain around that level until 2022. Our results show that global growth will slow in these scenarios by 0.4ppts-0.9ppts between 2018-2022. The economic impact is however very unevenly distributed between countries, but can best be distinguished between three different groups of countries: the vulnerable ones, the lucky ones, and the uncomfortable ones.”
“The vulnerable ones are net oil importing emerging markets like India and Turkey that experience short-term pain in case of a swift rise in oil prices, but recover somewhat from initial blows. In our severe scenario, Turkey is the only country that will end up in recession, with expected GDP growth of -0.5% in 2019.”
“The lucky ones are oil exporting countries that benefit from a rise in oil prices, e.g. Middle East and Russia. Russia experiences a goldilocks trajectory in especially the severe scenario, combining relative low inflation below 5% with very high economic gains (6.8% in 2019).”
“The uncomfortable ones are net oil importing countries facing moderate losses, for example the US and Eurozone. The US, the world’s largest oil importer after China, loses 1.9ppts of GDP growth up till 2022 in our severe scenario, which equals almost USD 500bn.”
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