How does the price of oil approaching 100 USD affect the world?

 How does the price of oil approaching 100 USD affect the world?

Rising oil prices inflate the budgets of producing countries, but increase costs for businesses and people, dragging down global growth.

The recent Russia-Ukraine tension dragged WTI and Brent crude oil prices to $94 and $95 a barrel. This is the first time since 2014 that the world crude oil price has moved closer to $100 a barrel, threatening growth prospects and raising global inflation.

This combination is worrisome for the US Federal Reserve and other central banks, as they must contain their strongest inflationary pressures in decades without dragging on the recovery in recent months. epidemic. A group of 20 financial officials from the world's top economies will meet this week, with the biggest concern being inflation.

While fuel exporting countries could benefit from this price increase, the rest of the world will be hit hard. Costs to businesses and consumers will rise. Food, transportation and heating prices will be more expensive.

Recent world oil price movements.

Recent world oil price movements.

According to research by Bloomberg Economics, the price of oil to 100 USD by the end of this month will drag inflation in the US and Europe to 0.5% in the second half of this year. JPMorgan Chase also warned that a price increase of $150 would almost halt global growth and drag inflation to more than 7% - triple the target of most monetary policymakers.

"The oil price shock is amplifying inflation concerns," said Peter Hooper, a veteran Fed official. "The possibility of a slowdown in global growth is very high."

Crude oil prices are now about 50% higher than in the same period last year. Some reasons are the increased global travel demand after the blockade, geopolitical risks from Russia - Ukraine and tight supply. Occasionally, the market cools as the prospect of a nuclear deal with Iran improves.

However, the increase is still very high. Just 2 years ago, oil prices also had a negative time. The prices of fossil fuels, such as oil, coal and gas, currently contribute more than 80% of the world's energy.

The fuel shortage has exacerbated disruptions to global supply chains, which are driving prices up and delaying deliveries of raw materials and finished products. Vivian Lau, director of a logistics company in Hong Kong, said her clients are closely monitoring the situation of rising fuel prices.

"Oil prices are definitely a concern," said Lau - Vice President of Pacific Air Holdings. "This happens in the context of the cost of transporting goods by air, which is already very high."

Economists are also plotting multiple scenarios. Goldman Sachs thinks that oil prices may rise to $100 in the third quarter. They estimate a 50% increase in prices will drag inflation to an average of 0.6%. The hardest hit will be emerging economies.

The International Monetary Fund (IMF) recently raised its forecast for global inflation to 3.9% in developed countries this year. This figure is higher than 2.3% and 5.9% in emerging and developing countries.

"As inflation hits multi-decade highs, rising energy prices will deal a blow to the global economic recovery," economists at HSBC said in a report earlier this month.

China, the world's largest oil importer and largest commodity exporter, has so far had low inflation. However, this economy will suffer as manufacturers are recording high input costs and fear of fuel shortages.

With price pressures stronger than expected, central banks are now prioritizing inflation over supporting demand. Inflation in the US in January reached a 4-decade high, causing turmoil in all fields. This increases the forecast that the Fed will raise interest rates up to 7 times this year.

Bank of England Governor Andrew Bailey this month defended the decision to raise interest rates on the grounds of "high fuel prices". European Central Bank (ECB) President Christine Lagarde also recently said that she would "carefully assess" how energy prices affect the economy, and signaled monetary tightening. The Central Bank of India also sees oil prices as a risk.

Mark Zandi, chief economist at Moody's Analytics, estimates that for every $10 increase in oil prices, global growth will decline by 0.1% the following year. Before shale technology appeared, the reduction was 0.3% - 0.4%.

However, the world economy is no longer so dependent on oil as it was a few decades ago. Many new forms of energy have also emerged. In the US, the boom in the shale oil industry means the economy is less vulnerable to fuel shocks. Although consumers pay more for gasoline, American oil producers make better.

Many other oil-producing countries also have reason to celebrate. For example, Russia's budget will add more than $65 billion this year, making it more resilient if it is subject to sanctions because of Ukraine. Countries like Canada or the Middle East also benefit.