World oil price in 2011

(Reuters) – “The global economy can withstand an oil price of $100 a barrel, Kuwait's oil minister said on Saturday, as other exporters indicated OPEC may decide against increasing output through 2011 as the market was well supplied” (http://in.reuters.com/article/idUSTRE6BN16A20101225).

The international oil price is a result of consulting, compromise and game that between oil producing countries and big consumers, as well as keeps a relatively reasonable price in a short term. Too high oil price would harm global economy and too low would not stimulate positivity of oil producing countries or organizations, so this situation decides a reasonable interval of world oil price. As we know $70-$80 per barrel is a relatively reasonable price in 2010, this price could be received by supply and demand parties. So OPEC did not change the crude oil output by a wide margin and this price level did not hinder the global economy growth.

In the beginning of this year, almost every expert and organization forecast that 2011 oil price will keep increasing, as well as like Kuwait said that “global economy can withstand an oil price of $100 a barrel”. Higher price is not what consumers want to see. “The current high price of oil will threaten economic recovery in 2011”, “oil import costs for countries in the Organization for Economic Co-operation and Development had risen 30% in the past year to $790bn (£508bn)” and “this is equal to a loss of income of 0.5% of OECD gross domestic product (GDP)”, said International Energy Agency (http://www.bbc.co.uk/news/business-12117902).

Additionally, the increasing oil price would add China’s inflationary pressure. From the China’s increasing demand of oil import in the past years, the oil imports will continue increase in 2011. But the increasing oil price would drive the other staple commodities prices increase, and then cause global inflation (China is the largest commodity exporter in the world, so the higher producing cost must lead to the exports price rise).

However, on the other hand, the increasing oil price is a signal of global economic recovery. The economic recovery is one reason that causes world demand of oil remained elevated since the 2nd quarter 2009. Since the 4th quarter last year, the Europe’s unusual cold weather and oil stock fell lead to a raise on oil price, but I think the global economic recovery is the main reason that rose demand and price of oil.