Economist Roubini: $100 Crude Oil Would Hurt Economic Recovery
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Prominent economist Nouriel Roubini warned that rising oil prices are likely to hinder economic recovery, Reuters reported yesterday. “The price increase we have seen is too much, too fast,” Roubini said at a commodities conference in New York. “Part of the rise may be justified by global economic recovery…but going from $30 to $80 [per barrel] when demand for oil is down to 2005 levels is very difficult to justify.”
Over the last several months, US crude prices have jumped nearly 150 percent to above $80 after hitting a 2009 low of $32.70 per barrel in January. While many traders happily attribute the price increase to an improving economy, others have argued that oil’s latest rally is fueled by a weak dollar, speculation, and unjustified optimism. “Think what happened to oil last year,” Roubini said. “It went up not because of fundamental reasons like demand, but because of a bubble.” Indeed, crude inventories are approaching multi-year highs in the United States, the world’s biggest oil consumer, even as demand goes down.
“If oil goes to $100 today, it will have the same effect on the global economy as what $147 oil had last year,” said Roubini, referring to the staggering price of oil just before the US financial crisis escalated into a global recession in 2008. “Today we have new bubbles because of a wall of liquidity created by the massive dollar carry trade,” Roubini told his audience on Wednesday, referring to investors’ use of a weak dollar to buy high-yielding assets.
Roubini, an economics professor at New York University, is best known for predicting the unraveling of the housing market and the credit crisis. In 2005, Roubini argued that home prices were riding a speculative wave that would soon sink the economy. In September 2006, he warned that the United States will likely “face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence, and, ultimately, a deep recession.”
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