The New Nation - Internet Edition

THE feared super-spike in crude oil prices that appears to be underway could deal a crippling blow to a global economy as reported by the media quoting analysts. Crude prices last week soared past the level of US$ 130 a barrel for the first time, more than doubling in one year. The jump was in line with predictions from a Goldman Sachs analyst that oil prices could reach US$ 150 to 200 a barrel. The reality of sky-high energy costs could mean a darker outlook for the US and global economy, by raising the price of a variety of goods and services.

The notion of a quick recovery of the struggling US economy would likely be in doubt, and the rest of the world would suffer as well. A global economic downturn would be the most likely outcome, led by a longer and deeper recession in the US. The airlines industry, already reeling from the surge in the past year, is feeling even more pain. The airline industry, as it is constituted today, was not built to withstand oil prices at US$ 125 a barrel and certainly not when record fuel expenses are coupled with a weak US economy, according to an expert.

But some are of the opinion that oil is a bubble waiting to burst and that prices could fall sharply as supply and demand come into balance. The world is consuming 87 million barrels per day of oil while producing only 82.6 million barrels. There is a concern about the possibility that a euphoric investment mentality is beginning to overtake the oil market. An oil price mania is a particularly dangerous type of excess since it has the potential to generate severe economic, inflationary or political dislocation. The strain on economies like Bangladesh is particularly difficult to manage.