Henning Gloystein London
THE EU could save up to $80 billion (R884bn) in energy imports if oil prices remain low, providing some relief to households and companies in a region that has been laid low for the last five years.
The price of oil has dropped over a quarter since the northern hemisphere summer to below $85 a barrel, a level last seen in June 2010.
Energy imports for oil, natural gas and thermal coal cost the EU around $500bn in 2013, with three-quarters of that being spent to buy oil.
This year’s figure could fall by almost $25bn to around $485bn, and if oil prices average below $90 a barrel next year, the overall import bill could fall as low as $425bn, over $80bn less than paid by the EU for imports in 2013.
Falling energy prices reflect a darkening world economic outlook but they could temper any new downturn.
While headline inflation rates could be pushed lower, households and energy-intensive industries in countries that rely on oil imports will find their costs reduced, raising at the margin their ability to spend and invest.
“Global oil prices have fallen in almost every currency and that should lead to a boost in consumption,” Bank of America Merrill Lynch said yesterday.
Oil is the world’s most important fuel but coal is the most important for electricity generation. The price of coal has almost halved since 2011.
Inflation is already noticeable by its absence in most of the world and the euro zone is battling to ward off deflation.
Figures from China yesterday showed inflation hit a near five-year low of 1.6 percent despite an economic growth rate that is expected to hold above 7 percent this year. The British economy looks robust, yet inflation has dropped to 1.2 percent and US inflation was last reported at 1.7 percent.
Some analysts expect that vista to force more action from central banks. “The low inflation readings will open the door to further targeted monetary and fiscal easing. There is also less need for a strong currency to offset imported inflation,” said Dariusz Kowalczyk, a senior economist at Credit Agricole.
But the European Central Bank faces fierce opposition to printing money, not least from Germany’s powerful central bank, and is waiting to gauge the impact from a raft of measures to boost credit and lending.
The euro has dropped nearly 10 percent against the dollar since May. That will partly offset the fall in dollar-denominated oil but will push up inflation.
More likely might be a delay to monetary tightening in those countries that are recovering.
Analysts initially said the oil price decline was largely due to greater supply from the North American shale boom, the tapping of new offshore reserves worldwide and greater output of coal.
But they have also begun pointing to a slowdown in demand, citing China’s ebbing thirst for oil and what could be its first drop in demand for coal in over a decade as economic growth slows. – Reuters