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The end of the era of cheap oil

The price of oil is at its highest level for nearly a decade. Since the end of the Gulf War in 1991, the per-barrel price of crude has traded below its historical average of around $20. And it’s no coincidence that during this time the global economy has enjoyed almost unparalleled prosperity. Low energy prices have allowed new-paradigm economists to declare inflation dead. It may be stirring in its grave. And while industrialized nations are less dependent on oil than in the past, it’s importance in transport is still enormous. No-one is sure where the oil price goes from here, nor what the consequences might be of a sustained price rise. Jonathan Brown reports

The recent marked increase in oil prices has, most notably, led to increased petrol prices causing vocal protests from the people of the industrialized nations. But worse may be to come. It is possible that, should oil prices continue to stay above $30 a barrel, the world's economy will not just slow down but enter a period of recession.

The plain fact of the matter is that, despite the developments over the last few years in what has been dubbed the new economy, the world still runs on oil and the oil market has a profound influence on the economy of the world. US Federal Reserve chairman Alan Greenspan, in a speech in late October to the Cato Institute, said: "The re-emergence of oil prices as an important macroeconomic consideration is a reminder that there is less of a stark division between old and new economies than is often loosely suggested." While stating that, up to now, the effects of the price hike have been minimal, he advised that: "Policymakers will need to be on the alert for oil-driven, indeed energy-driven, risks to our expansion."

The sun may be sinking on a period of low oil prices

A report by Merrill Lynch supports the view that we are moving towards a new, higher level for oil prices: "Merrill Lynch's longer term oil price outlook is the view that crude prices will normalize well above the 10-year historical average.

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