Unit 2 Macro: Might Oil Prices Bring another Recession?

The international price of crude oil has been rising strongly in recent weeks and threatens to be an external factor driving an already weak Euro Zone and UK economy back into recession.

Higher oil prices push up the price of many imported goods and services and effectively represent an extra tax on oil-consuming nations. The UK is now firmly in the category of being a net oil importer - production from the North Sea is long past the peak - so higher prices will worsen our trade deficit whilst adding to inflationary pressures at a time when real incomes are already in decline. UK North Sea oil & gas production is falling at faster than expected levels & was down 17% in 2011.

The weakness of sterling in foreign exchange markets amplifies the effect of rising world prices since oil is traded in US dollars.

We are seeing on the petrol forecourts the immediate effect of the surge in world oil prices. Average fuel prices in the UK in February 2002 were 75.3 pence for a litre of diesel but are now at 143.5 pence.

This short video from BBC news looks at some of the geo-political factors influencing the market

       

Channel 4 have this great graphic on the world oil market

Oil market

Download the charts as a presentation
Oil_gas_charts.pptx

 

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