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Oil Prices Won’t Rise Soon

That’s what Alexei Bayer at the Moscow Times believes:

Even if the current global slump comes to an end by early 2010, growth will remain sluggish and fragile. Demand will remain weak everywhere, and the global economy will not be able to absorb renewed oil price increases.

A similar situation occurred in 1979. When the Iranian revolution pushed up oil prices, the global economy was already stagnating. Oil became the last straw that plunged the world into a deep recession, accompanied by defaults from international debtors.

The same is likely to happen this time. Even if oil supplies do not expand in the coming years, OPEC and other oil producers will find it difficult to raise prices. Of course, oil prices may still spike suddenly because of a sudden political jolt or military conflict. But higher oil prices will then trigger a contraction in global economic activity and a renewed decline in oil prices. It should be recalled that in the early 1980s, the recession ushered in a long period of declining oil prices, culminating in $10-per-barrel oil by the end of the 1990s.