Today’s chart of the week is on the recent increase in the oil price to above $80 a barrel. Given the potential impact on the global economy, this rise is the cause of some concern. A sudden spike in oil prices has been linked to a number of past recessions.
The last time that the one-month forward price for Brent Crude was above $80 was in October 2014, when it cost $85.93 to buy a barrel of mixed hydrocarbons (with free sulphur included).
Just 15 months later in January 2016 the price was down to less than $35, but since then the price has bounced back and was up to $82.69 at 30 September 2018, reaching $84.79 at the close yesterday – just 1.3% below the 31 October 2014 price.
From a US perspective, this is a return to the position of four years ago, but for the UK it is different. With Sterling weaker against USD, the price yesterday was £65.34, over 20% higher than the £53.71 a barrel it would have cost in October 2014.
This effect is even more pronounced for emerging economies with weakening domestic currencies. The price of oil in Brazilian Reals is now over 50% higher that it was four years ago.
For growing economies, higher oil prices are unhelpful. For economies that are struggling, markedly higher oil prices might prove devastating.