Oil Price Scenarios and the Global Economy

Andrew Stoeckel and Warwick J. McKibbin
Warwick McKibbin
Warwick J. McKibbin Former expert - Economic Studies, Center on Regulation and Markets, Distinguished Professor of Economics & Public Policy - Crawford School of Public Policy, The Australian National University

December 1, 2004


Oil prices have risen above the US$50 a barrel level despite a lift in output by OPEC producers. Turmoil in Iraq, unrest in Nigeria, uncertainty of supply by Yukos — the Russian oil giant — and high demand from a booming China have all played their part. Even Hurricane Ivan that hit the Caribbean and Southeastern USA played a role in disrupting oil supplies. Yet, while crude oil prices have risen dramatically, crude oil inventory levels have been increasing. And recently the OPEC President predicted US$30 a barrel shortly on the fundamental supply and demand situation. In this report, two scenarios are evaluated: a sustained lift in prices to levels recently experienced and a temporary rise with levels returning to a ‘normal’ US$25 a barrel. Conventional wisdom about who gains and loses under such scenarios — at least for non-oil developing countries — is challenged by the analysis here.