A recent poll among economists conducted by Reuters suggests that the global economy is likely to continue on a strong course. This bullish outlook is good news for oil, but some implications may keep prices range-bound. The 500 respondents Reuters polled predict that global GDP growth will reach 2.9% this year.
The global economy has shown surprising resilience this year, with growth projections being revised upward for major economies like the U.S., China, and Europe. Citi’s global chief economist, Nathan Sheets, stated that the solid feeling in the global economy is due to this upward revision of growth projections.
The implications of strong economic growth on oil demand are mixed. While higher economic growth typically leads to increased oil demand, inflation due to higher benchmark rates can dampen this demand growth. This could keep oil prices within a certain range unless there is an escalation in the Middle East that poses a threat to supply. The World Bank has warned that if there is an escalation in the Middle East, oil prices could exceed $100 per barrel and contribute to persistent inflation. The chief economist of the World Bank, Indermit Gill, explained that falling commodity prices have hit a wall and interest rates could remain higher than expected if an oil supply shock occurs in the Middle East. He cautioned that an energy shock could undermine efforts to control inflation and leave the world vulnerable to persistent inflationary pressures.
In conclusion, while the global economy is expected to continue on a strong course and lead to increased demand for oil, various factors such as inflation and potential supply shocks could keep prices within a certain range or even dampen their growth altogether.