A morning call from Bank of America Merrill Lynch says:
"Following the recent Libyan oil supply disruptions our oil price expectations have been upgraded. Our 2Q11 forecast for Brent moves up to $122/bbl from $86/bbl.
"On average for 2011, Brent crude oil prices are projected to be at $108/bbl, up from our prior forecast of $88/bbl.
"As the situation in the Middle East remains volatile, we see larger than normal risks around our base case scenario, with a 30% chance for higher oil prices if the situation worsens, and focus on Bahrain and Iran."
And, this 30% chance of oil price rises could see the $125 - $160 barrel range being met.
"It is worth highlighting that even after lifting their price profile, we still see a 30% probability for an oil price overshoot, which could take quotations to $240/bbl over the coming 12 months," say Bank of America.
Implications for global growth
Should oil prices surge higher to these levels, then a global slow down is highly likely.
Higher oil prices reduce domestic demand; reduce global growth, affecting export demand; worsen the balance of payments; and boost inflation, complicating interest rate policy.
"In a recent Global Energy Weekly, we calculated that average Brent crude oil prices of around $115/bbl in 2011 and $130/bbl next year would have scope to severely damage the global economy and hence also metals demand. Looking at this from another angle, our economics team estimates that a $10/bbl increase in oil prices reduces GDP growth in developed oil consuming nations by 0.1% to 0.5% over the following four quarters," says the note from Bank of America. Source: http://www.economy-news.co.uk/oil-prices-16201103-2.html
Really?!
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