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The Hiking Oil Price and the Recession

April 07, 2012 | Comments: 0 | Views: 127

2011 might have been the toughest in the recent past with global economy tumbling down to its knees. Many investors felt the pinch and some ventures had to close shop. The majority of the blame was pointed at the price of fuel that has been on a constant rise. As a result, prices of basic commodities aimed for the roof as manufactures struggled to cushion themselves from losses as a result of increased production.

Many couldn't wait for the end of the "doom year" hoping that this year, things would be better. Unfortunately, economists have no good words for the anxious populace. Recession if far from over and if you thought 2011 was the worst year of mankind, then you should brace yourself for even tougher economic times in 2012, especially in West Europe as there seems to be no way out of a glaring recession this year.

The Arab Spring and the Middle Eastern exporters of oil have no enticing words to those whose reliance on oil is massive as the price is set to rise higher in 2012. This is set to affect the growth and expansion of the world's fastest emerging economic giants; China, India, Russia and Brazil. The four currently make up a quarter of the world's economy and are set to reap big in the world's 2012 economic growth. Even though the four are not shielded by the sovereign debts shambles enjoyed by other western world's countries, they have lower debts, stable banking systems, huge reserves and even more importantly, they have an enhanced inter-country trading that guarantees their products markets all year long. The more advanced economies are bound to lose out this year, just like they did in 2011.

In 2010, the price of crude oil was $79 a barrel, but a year later, this price shot to an average of $111 in 2011. With this set to rise further, European nations are likely to experience another year of escalating cost of basic commodities. The Middle East nations have realized that they can use the oil in their countries for the very reasons those they export to use. They are setting up industries and utilizing their oil from within, a trend that is causing both an escalation of the price as well as biting shortage. Even though the Asian nations currently consume only a fraction of what the world consumes, their demand is on a rapid rise.

Fuel consumption per day was 89 million barrels per day in 2011 up from 88.3 million in 2010. Projections have it that the consumption may rise to 95 million barrels per day in 2016, a whopping 25% increase in 16 years. Although supply has increased too, with OPEC reporting a 30.7 million barrels a day and global production standing at eight nine million barrels a day in 2011, the price has not been affected positively as it has remained at a stubborn $100 a barrel.

The price of oil will definitely define the performance of major economies in the world and unless the world leaders and major economy players and industrialist nations that consume a large percentage of this commodity, then we should brace ourselves for tougher times in 2012.

John Conolly is an independent investor with many years experience of the stock market. His sites, such as and give fellow investors the chance to discuss and exchange share information.

Source: EzineArticles
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