Oil and the Economy

IMF Sees Oil Prices Staying High

• Production constraints limiting increase in supply of oil


• Growth in emerging markets, particularly China, boosting demand

• Policies should aim at easing economies’ adjustment to increased oil scarcity
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Oil  prices are likely to remain high for the foreseeable future and IMF economists say that governments should be looking to back sustainable alternative sources of energy.
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Threats to oil supplies, including geopolitical risks, imply that oil scarcity could be more severe and may materialize in large and abrupt changes. The negative global growth effects would be correspondingly larger

The fundamental; supply and demand.   Scarcity oil the demand is much greater than supply. Here Reuters is also  "There is a risk that the tensions between demand and supply trends could intensify again and prices could rise rapidly."
 
The fact is; If this Libya crisis dragging on, the supply shock we have seen from the history, credit to the tensions in the Oil producing Libya Middle East is potentially fatal for the global economy, higher fuel prices to lead to a threat to the fragile recovery. We also worry this Middle East crisis, about the another fact, as we have seen through the world financial crisis, about a prolonged oil price rise, according to the IMF – it could cause the sort of financial instability that was responsible for triggering the another financial crisis.

Also in a period of rising prices, oil exporting countries,  are very happy about their fat surpluses, while importers(most of the countries are) will see  their deficits rise higher. That is imbalances: the capital flows they generate, that is the primary sources of instability in the global economy which we have seen,  that is we should worry about as the last crisis recovery still fragile.

YSK-W

Libya and the World Economy

Paul Krugman argues that really the problem was global demand.

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With populations and incomes steadily increasing in Asia, there seemed to be an inexorable rise in global energy demand.
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Instead, what the higher oil price will probably mean this time round - but only if it remains elevated for several months, and starts being passed through to consumers - is a further squeeze on household budgets
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The dilemma for Western monetary policy is particularly unpleasant, because the only way for them to keep inflation down is by punishing households in their countries even more by increasing their borrowing costs
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And if it means the world gets a stable and democratic Middle East, then perhaps it is a price worth paying.

Crude Oil Declines From 30-Month High on Demand Signals From U.S., China

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The conflict in Libya is the bloodiest in a wave of uprisings that has toppled the leaders of Tunisia and Egypt and spread to Algeria, Bahrain, Oman, Syria and Yemen. Oil prices have climbed 18 percent since the ouster of Tunisian President Zine Abidine Ben Ali on Jan. 14.
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New York futures also declined after Federal Reserve Chairman Ben S. Bernanke said late yesterday that policy makers must watch inflation “very closely” for evidence that rising commodity costs are having more than a temporary impact on consumer prices.

Yes demand and supply again, we are living in a finite world, everything limited, scarcity natural resources. That is why we need innovation and discovery new reserve, but our limited capacity not fast enough these  meet the demand either, so the efficiency that is another innovation-- within what we have. That is why the world must understand what mean Libya civil war is. Whole world suffered last few years. USA think because of the distant, Libya problems is not really theirs but Europeans. I see different way. USA is the biggest economy world, their investment around world much impact on this economic down turn directly indirectly. e.g. less sell cola and big Mac, less money for the USA coffer. If Libya war drags on, so the Libya oil can not get out, who know the OPEC increases price whatever they want again or it gives overall impact on proximity, fundamentals it can be measureable short but immeasurableness side of long-run overall impact on the world economy, that case USA, the biggest looser as it is the biggest economy. I know President Obama now bidding second terms, every steps he moves for Americana wishes, this is immediate effect on USA economic too, so USA might help for Libyan fighter winning their battle that is looking bright for all around. Who know their slink super wiz technology kill Gaddafi off! that would be very nice indeed!

YSK-W