By: Dr. Mike Campbell
Crude oil is a versatile commodity. Apart from the obvious uses of the refined products as fuels for aviation; cars; tractors and trucks (kerosene; petrol; diesel), it is used to produce lubricants, plastics and as a feedstock for certain types of pharmaceutical production. Oil (and gas) is burned in power plants to produce energy which is used in just about every sector of the economy. It is no exaggeration to say that oil is the life-blood of the global economy.
Just towards the end of last year, the price of oil on international markets rose to its highest level since the global financial crisis struck. Brent crude futures (for February delivery) were trading above the $95 mark. In the depths of the crisis, the price of a barrel of Brent crude was selling for just above $40 – prior to the crisis in mid 2008 the same barrel would have set you back $140.
The International Energy Agency has cautioned that a high oil price poses a threat to the recovery. The Agency pointed out that the cost of oil imports to OECD member states had risen by 30% over the course of 2010. They estimate that the cost of oil imports to OECD countries was $790 billion and that the rise equates to a decline of 0.5% of the total OECD gross domestic product.
The UN has raised concerns about the cost of food which have risen to above the record levels seen in 2008. Part of the cost of food relates to transport and (in some cases) energy costs. The high price of oil will contribute to higher costs in food production and delivery which will be passed on to the consumer, of course.