Oil prices have surged again, and investment bank Goldman Sachs thinks they have the potential to spike to near $100 a barrel by the end of summer unless Middle East production increases. How would a rise to, say, $95 a barrel affect the global economy? Some key take-aways from a new analysis by the bank:
1) The firm's research suggests such a jump would reduce world economic growth by 0.3 percent over one year, from 4.5 percent to 4.2 percent.
2) Given that the global economy was resilient to the rapid 60 percent rise in oil prices in the first half of last year, a spike of a lesser magnitude from here is unlikely to cause a notable downturn.
3) Unless the price hike is sustained—and the bank expects it to fall back to current levels—it would not have enough of an effect on inflation to force the Federal Reserve to raise interest rates.
Separately, the firm updated its forecast of the world's biggest economies for the year 2050: China (with a gross domestic product of around $70 trillion, in 2006 dollars), followed by the United States ($38 trillion), with India ($38 trillion) close behind. On an income-per-person basis, America would still be in the lead at $92,000, followed by Korea at $90,000. China would be well back, at around $50,000.
My take: This is not a bank that expects oil prices to ruin the economy today or in the future. While theories about "peak oil"—that world oil production is about maxed out as demand keeps rising—are popular on the Internet, it is tough to find an oil analyst or natural resources fund manager with even the slightest sympathy toward them. Peak-oil guys are still outliers on Wall Street.
Oh, several readers think I may have misidentified Sen. Joe Biden in a recent post as a believer in peak oil based on some debate comments of his, when he claimed Iran would have to start importing oil in 2014. Perhaps Biden was referring to a future inability of Iran to pump oil because of a lack of investment in its infrastructure. Maybe, but 2014 is also a common date given for when global oil production will peak and begin to fall. As they used to say in Soviet Russia, "It's no coincidence..."