Lower oil prices will do little to spur global growth in the next two years as the world economy is buffeted by events in the eurozone, China and Russia, a credit-rating agency has warned.
The claim came as oil prices continued to fall on Wednesday to below $55 after a brief but significant rally last week and as a top industry analyst predicted the value of crude would fall a lot more before it any sustained improvement.
Analysts at Moody’s said the big fall in the price of oil since the summer should, in theory, boost economic output by cutting costs for businesses and consumers. But in its global macro outlook report, Moody’s left its estimates for growth among G20 countries at less than 3% – broadly unchanged from last year’s rate and Moody’s earlier 2015 forecast in November.
Marie Diron, who wrote the report, said: “A range of factors will offset the windfall income gains from cheaper energy. In the euro area, the fall in oil prices takes place in an unfavourable economic climate, with high unemployment, low or negative inflation and resurgent political uncertainty in some countries.”
Gains in real household incomes in the eurozone will be suppressed by joblessness and prices barely rising or falling. People worried about losing their job are likely to save and not spend any extra money, Diron said.
The analysts left their UK growth forecast unchanged at between 2% and 3% for the next two years. George Osborne, the UK chancellor, has said the falling price of oil is good news for the British economy.
Moody’s based its estimates on Brent crude prices averaging $55 a barrel this year and $65 next year. The price plunged from $115 a barrel last June to below $50 in January but has risen slightly since.
Brent crude fell 90 cents to $55.53 on Wednesday morning. The price tumbled below $58 on Tuesday after the International Energy Agency said the US shale boom, which has increased the global supply of oil, would cause prices to settle well below levels of the past few years.
Higher energy taxes and government price controls will reduce the effect of lower oil prices in China, where growth will slow this year and next. Russia and Saudi Arabia, both big oil producers, will be hit with Russia suffering a sharp recession until 2017, Moody’s said.
The main gainers from continuing low oil prices will be the US and India, the rating agency said, increasing its forecast for US growth in 2015 to 3.2% from 3%.
Tom Kloza, chief oil analyst at Oil Price Information Service, predicted that oil prices would bottom during the second quarter of the year “simultaneously to one of the expirations of the WTI contracts.”
He warned that the price of West Texas Intermediate crude, which generally trades slightly lower than the North Sea benchmark, Brent blend, could be in the $30s at some point in the second quarter.
“I think the cycle has a long way to run out,” Kloza said on CNBC’s “Fast Money,” adding that the spread between Brent and WTI could widen to about $10 or so.
Last week, Bob Dudley, the chief executive of BP, warned that the industry should steel itself for a “new phase” of lower oil prices that could last months if not years.
But his counterpart at Shell, Ben van Beurden, argued that the fall in prices should be relatively short-lived because there was no enormous gap between supply and demand.
The oil industry has reported a major downturn in profits as a result of the change in commodity prices and their share prices have been heavily marked down.
Spending on exploration and production was slashed by over 25% at BP while Shell said it would be making $15bn worth of savings over the next three years unless oil prices bounced back.
More than a thousand jobs have been cut already by major companies in Aberdeen and the government has indicated that it will make further changes to the tax structure in the budget to improve the industry outlook.
The recent declines in the oil price sent inflation in Britain down to 0.5% in December, a 14-year low. Petrol prices also dived to almost £1 per litre for unleaded fuel making transport and distribution cheaper around the UK. The price of wholesale gas has also fallen leading to major energy suppliers reducing their charges although only by relatiuvely small amounts so far.
Mark Carney, the Bank of England governor, said last month that low oil prices would be a “net positive” for the UK economy although he accepted it would knock Scotland.
In recent weeks, the price of crude had started to march back up again from a low of $45 only to start falling again.
