It seems that we are only getting bad news about the retail sector and the economy in general this year so far. There are many issues that could be commented on, but today it is notable that the price of oil has breached $100 a barrel for the first time since 2008. This is bad news as oil prices filter through to the price of everything in the shops and thus retail inflation. If you consider for a moment the impact that this slightly raised inflation could have on our economy - already two members of the Bank of England Monetary Policy Committee are voting for an interest rate rise, with increased inflation, just by a little bit others may vote in this direction also resulting in a rise that really could damage our economic outlook. A rise in interest rates as we know will mean less money generally in the economy, probably falling house prices and yet lower consumer confidence.
Now lets look at the reason for the 'mini' spike in oil prices today: The only story in the news today seemingly, the crisis in Egypt. 5% of the worlds oil travels through the Suez canal to reach it's final destination and speculators are worried that the current turmoil in the country could disrupt this important passage, thus the price rise. So protesters in Egypt really do threaten to have an effect on the UK economy!
Things change quickly. The situation in Egypt is seemingly resolved, but it is now Libya that is in turmoil, and oil prices have quickly risen to $112. Egypt produces 0.8% of the worlds oil, Libya 2.1%, thus the greater effect that they the issues here are causing. The real worry is if Saudia Arabia gets caught in the same chain of revolutionary spirit - they produce some 11.6% of the worlds oil, and a significantly higher proportion to the European markets. Any hint of problems with Saudi oil supply and the markets will inflate the price very strongly having the inevitable effect on the fragile global economies.
ReplyDeleteBy 28th Feb Libyas oil production is down 75%. Saudia Arabia have promised to make up this shortfall, but simply 119 academics writing a letter to the Saudia kind demanding reforms has unsettled the market and increased the fear that Saudia Arabia might have a more unstable imediate future has pushed oil up further, currently $114... and where to next...
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