Hi. This is Carl Tannenbaum, chief economist for Northern Trust. I'd have to confess that I'm not the world's greatest forecaster, and the record proves that. But I have to say I've completely given up trying to predict the price of oil, which has been all over the place this year.
Just since this past summer oil has gone from about $70 per barrel to $85 per barrel, and then more recently, down to $60 per barrel, and it's almost impossible to figure out why. Now, there have been some explanations forwarded on the supply side. We had thought that the supply of oil would be severely restricted because Iran is now the subject of international sanctions which restrict, at least in theory, their sales of oil, but some waivers were granted unexpectedly by the United States government, which has kept their production in the market.
As well, US producers, which have proven very nimble at reacting to price changes have ramped up their production very substantially beyond past expectations, as they've done several times during the last few years.
Then finally, I think it's clear that OPEC ain't what it used to be. They have a hard time controlling their membership. There are fights, in fact, between members of OPEC right now, and so they cannot agree on exactly how to reach the price targets that they have, and in the absence of that discipline, prices have been declining.
On the demand side of the energy market, there has been concern that economic growth across the globe is slowing down, especially in China, which is a big user of oil. Alternative fuels are rising in popularity as an alternative to petroleum. And also, the sensitivity in most places about climate change is leading countries to consider their overall use of fossil fuels and try and find ways to reduce them.
If oil prices stay at their current level of about $60 per barrel, there will be some important winners and losers. The winners primarily will be consumers of oil and gasoline, drivers. And petroleum is also an input to the costs of plastics and other things. Emerging markets which rely on oil imports for their energy will also be favored. It'll also hold down their rates of inflation and also their interest rates.
Of course, on the other side, losers will include debt producers in the Middle East that are very reliant on oil revenue for not just their economic growth, but also their budgets. And without that revenue, they're going to find it very, very hard to keep up their social stability.
And the United States in all of this is right in the middle. For most of my adult life, anyway we've been consumers of oil and at OPEC's mercy. But now, we're a big producer. And so the impact on the US economy is probably going to be about neutral no matter where the oil price goes. And that's probably a good thing, because I have no idea where it's going and that's The View From Here.