There is some economic hope in the new government in Greece, but if oil prices are any sort of barometer, the global economy has a long way to go before 2008 is in the rear-view mirror. In general crude oil prices for the year are down more than 20 percent amid lingering concerns that a dismal European economy will do anything to encourage demand. Iranian threats early this year caused a spike in oil prices, but those fears were largely emotional. Now, as prices move further away from $100 per barrel, it seems the threat to global economic recovery comes not from decisions made in Tehran but from the lack of decisions in the Eurozone. It may be premature, however, to pull the net away.
In July 2008, oil prices moved close to $150 per barrel. By December of that year, roughly $100 was off the price as the global economy began to sink. Nearly four years later, and not much has changed. Most political statements are still couched in promises of employment prospects and last week, the Dow lost two percent of its value. That suggests there's not much in the markets to give investors any sense of optimism. The U.S. economy is sluggish, China is slowing down and reports of a dismal European economy have resonated to the point of redundancy.
Last week, forecasts of Tropical Storm Debby pushed crude oil to higher territory as some international oil companies shut production as a precautionary measure. By Monday, however, those gains proved short-lived. By mid-day, most markets were sinking quickly on concerns that Spain may be the latest candidate to freeze the European economy. That sent bank stocks spiralling and erased any gains made in oil. Most analysts had said sentiment in the oil market is, at best, dismal.
There is seemingly plenty of oil available in the markets, which may in part explain prices. In the U.S., crude oil production is so prolific that the country lacks the infrastructure to do much with it. Globally, the Saudis may even consider constraining markets in an effort to keep oil prices under control. Much of the oil glut may be temporary protection against the series of sanctions set to go into force against Iran, however. That suggests there will likely be no major long-term impacts from the shortage of Iranian crude despite a few jitters the first week of July.
Investors say hope is long gone from conversations about European recovery. It's hard to say if dismantling the Eurozone would ease some of the restrictions. Recent commentary suggests that's not the case. Domestic protectionism rarely works in an international market either. OPEC, in its monthly report for June, suggested markets look an awful lot like they did in December 2008. The cartel, however, said it saw some resiliency in the U.S. economy. With retail gasoline prices in the United States moving close to $3 per gallon, some benefits could come as economically depressed Americans take to the road for summer holiday. By the time OPEC pens its next report, U.S. and European sanctions against Iran will be two weeks old. The story of the Great Recession isn't over but it's been a steady story long enough to suggest that as much as negativity lingers, there's still at least talk of hope.
By. Daniel Graeber of Oilprice.com
