Shakespearean drama: can higher oil prices be good for the world economy?
Yet again, oil prices broke record highs recently, and who benefits? A McKinsey report pointed to the fact that oil-exporting nations would pump $382 billion a year into financial markets around the globe, that's over $1 billion a day; but wait, that's if oil were traded at $50 a barrel, not at the recently traded $110. Potentially, at the real price level the total injected in financial markets would be greater than the GDP of several emerging economies.
So at the same time that financial markets are enjoying the influx of capital and the higher liquidity it creates, could there be a danger for a bubble burst if oil prices dramatically and suddenly decreased given the current economic woes and enviromental concerns? Would a contemporary and "green" Shakespeare bolster: Frailty thy name is oil?
So are oil prices heading toward $150 or downward to $50? Oil price volatility is the subejct of a new World Bank forum that tries to answer this and other questions.
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I think world oil prices are heading towards $150, not downward to $50. The trend is there: investors with lots of cash who are afraid to put their money in the banks because they don't know who will follow next to Bear Stearns, they park their money in oil, gold, silver, other commodities. Here, they are assured of protection from high inflation, at least in the next few months.
Besides, with more globalization, more people around the world are working harder, they move more often, and use more petroleum or oil-substitutes more often.
So, is expensive oil good for the world economy? In a sense, yes. The volume of cars and trucks on the roads, the boats and ships on the seas, and airplanes on the skies, will remain the same if not become plentier. But with higher oil prices, only more essential and more productive trips are made; the less essential and frivolous trips are postponed and substituted by online communications.
Posted by: Nonoy Oplas, PhilippinesN | Mar 17, 2008 10:47:58 PM
Assuming indeed that more money in the financial system automatically means "good for the world economy", I still wonder what the net effect would be. After all, McKinsey does not seem to have calculated how much funds gets withdrawn from the markets by oil importing countries.
Posted by: Jason | Mar 19, 2008 1:54:53 AM