After decades of oil price rises, new extraction techniques for shale and conventional deposits mean that recent dramatic price falls will be here to stay. This column argues that, even with oil at $50 a barrel, global producers will invest to catch up with US-led technological innovation and so add 40 million barrels a day to production by 2035. This will revolutionise domestic energy policymaking, environmental commitments and global geopolitics.
Roberto F. Aguilera, Marian Radetzki, 17 August 2016
Maurice Obstfeld, Rabah Arezki, Gian Maria Milesi-Ferretti, 13 April 2016
Oil prices have fallen sharply and remained persistently low, but the expected demand boost has not materialised. This column notes that when nominal interest rates are pinned at zero, lower inflation due to a drop in oil prices raises real interest rates, working against the traditional positive income effects. Dangers arise from the possibility of unanchored inflation expectations and dislocations – including corporate and sovereign defaults – that could spook already jittery financial markets. To combat such negative loops, demand support by the global community – along with a range of country-specific structural and financial-sector reforms – is urgent.
Christiane Baumeister, Lutz Kilian, 08 February 2016
Expectations play a key role in assessing how oil price fluctuations affect the economy. This column explores how consumers, policymakers, financial market participants, and economists form expectations about the price of crude oil, the differences in these expectations, and why future realisations of the price of oil so often differ substantially from these expectations. Differences in oil price expectations are shown to matter for quantifying oil price shocks and their transmission.
Robert Barro, 04 February 2016
China’s diminished growth prospects are in the news and seem to spell bad news for just about everybody. This column assesses the evidence, arguing that China’s economic growth will be much slower from now on, reducing international trade. Perhaps the biggest challenge for China will be future political tensions in reconciling economic dreams with economic realities.
Pierre-Louis Vézina, David von Below, 20 January 2016
The price of oil rose to unprecedented highs in the 2000s, and its recent plunge took many by surprise. Although there are many consequences of such price fluctuations on the world economy, they are notoriously difficult to pin down. This column examines the trade consequences of varying shipping costs caused by oil price fluctuations. High oil prices are found to increase the distance elasticity of trade, making trade less global. The recent drop in oil prices could thus be a boon for globalisation.
Bassam Fattouh, Lavan Mahadeva, 21 December 2012
In the last decade, there has been an explosion in the variety of instruments that permit speculation in oil, such as futures, options, index funds, and exchange-traded funds. This has been called the financialisation of the oil markets. This column examines whether this has affected the oil price and predicts powerful natural limits on the ability of financialisation shifts to raise spot prices in frictionless markets.