Just as pessimism over the world economy has begun to lift, pricier oil could act as a drag on global growth
of pessimism that hung over the world economy early this year has begun to lift in recent weeks. Trade flows are picking up in Asia, America’s retail sales have been strong, and even Europe’s beleaguered manufacturing industry has shown flickers of life. But it would not take much bad news to reinstate the gloom. One threat is that oil prices continue their upward march—on April 23rd the price of a barrel of Brent crude exceeded $74, the highest level for nearly six months.
Oil inventories are low, and it is far from clear that other producers will increase output enough to compensate for the supply shock. In the long term Saudi Arabia and othermembers have an incentive to avoid sky-high prices, which would lead to a new wave of capital pouring into American shale production. But the last time the Saudis complied with a request from the White House to pump more—after Mr Trump scrapped the Iran deal—they were then stung by his granting of the waivers.
Yet right now, pricier oil would be bad news for the global economy. It would hit its weaker spots. Europe, whose economy is in worse shape than America’s, has no shale industry to compensate for a hit to its consumers. China, which imports vast quantities of the black stuff, was the source of much of the recent global growth scare.
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