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1.19.2011

How sustainable is growth with triple-digit oil?

Source: Globe and Mail, January 18, 2011
Author: Jeff Rubin

With oil prices (CL-FT91.620.240.26%)within spitting distance of triple-digit levels, it may be time to reconsider just how long this recovery will run.

The fact that we’re seeing oil at triple-digit prices in this cycle should come as no surprise. After all, that’s where oil prices ended up last cycle before deep-sixing the global economy. But to see triple-digit prices again this early into what by all historical standards has been a painfully slow global recovery must be disconcerting to a world economy never hungrier for growth.

If merely getting back to pre-recession levels of global industrial production has oil knocking at the gates of triple digits, where do you think crude will be trading should we be fortunate enough to sustain this economic recovery for another year?

If anyone doubts how vital oil is to economic growth, just look at what happened last year. Global oil demand grew at two and a half per cent from the year before (almost double the International Energy Agency’s original forecast for 2010).

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