Energy prices rose on Monday after some startling developments in the Middle East, but it's likely to take a little longer for them to affect the economy.
West Texas Intermediate crude temporarily rose more than 11% to over $ 60 a barrel after the drone strike on Saudi oil holdings, but the jump was held in check by the meeting, expecting the US to be at its worst Just open their strategic reserve to withhold prices.
Even if the shockwaves of the conflict persist – Brent crude oil's international benchmark rose even higher on Monday – it is unlikely that the long-term effects will be felt.
The "observable level" is around $ 80 a barrel, said Nick Colas, co-founder of DataTrek Research. The current increase, he said, is likely to be "unsustainable".
"As dramatic as events on the weekend may be, it's not as if Iran or its deputies actually took over Saudi oil fields, as was the case with Iraq / Kuwait in 1
Even the 80-dollar level could not be this. This means a pronounced general downturn for the economy.
Colas points out that of the US recessions dating back to the early 1980s, none has survived without a rise in oil prices of at least 90%. For example, the Great Recession saw a movement of 96%, while the dot-com bankruptcy rose 141%, jumping by 96% in the 1990s.
There are several other notable trends in the history of oil price spikes.
First, most are driven by macro effects rather than industry-specific events. The move in 2008/09 was due to the turbulence in the financial crisis, while at least half a dozen other strong jumps led to bear market replacements instead of secular long-term gains.
This has inherently more implications than causes "The attack on Saudi oil is unlikely to be a catastrophe for the global economy," said Jennifer McKeown, Head of Global Economics at Capital Economics, in a note. "Saudi production could be resumed fairly quickly, and even if that is not the case, the effects on oil prices and inflation in developed countries should be limited."
McKeown sees three possible scenarios: The most likely scenario in which Saudi production comes back online quickly and prices fall back to Capital's forecast for 2019 of $ 60 a barrel; A second that would bring "a longer downtime" and possible further attacks that would raise the price to $ 85 a barrel, and a third that would provoke a "full-fledged US-Iran conflict" affecting prices in that one In any case, McKeown does not see any great likelihood of long-term effects.
"The moderate and temporary inflationary implications imply that the direct impact on advanced GDP growth would be low," she said. "This is particularly the case because it is very unlikely that central banks will react to higher headline inflation in the current environment, with tightening of monetary policy."
In fact, the Federal Reserve is joining this week and is still expected to lower its interest rate by a quarter of a point. The likelihood of the US Federal Reserve holding the line, however, rose sharply on Monday as oil prices rose. Traders now expect a 34% chance that nothing will move.
Nevertheless, McKeown warned that tensions in the Middle East are "another headwind." "For a weakened global economy, a" full-fledged "conflict could trigger another leg of the global downturn. "