The cumulative effects of higher oil prices, higher food prices and the credit crunch are only just beginning to be felt. Now it seems certain oil will go to $150 a barrel before the end of the summer, and that will be the real crunch.
Higher oil will mean even higher food prices, and of course higher energy prices at home and at work. Solar panel prices are set to collapse, but not yet. We are set for a year of living dangerously.
The oil price has already doubled in the past 16 months, but the effects have been, to many, surprisingly limited, especially when compared with the circumstances surrounding the oil shock of the late 1970s.
Goldman Sachs yesterday warned investors to expect US$150 to US$200 a barrel over the next two years. Some believe oil would need to remain at that level for at least two quarters before it would exert a drag on growth similar to that experienced in 1981. The difference between then and now is low, low interest rates.
Oil set a record high above $120 a barrel, resuming its advance after a sharp downward move last week.
Supply disruptions in Nigeria, where a strike and attacks by militants have hurt production, continue to support a market that is nervous about any threats.
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