High oil prices could prompt 'double dip' recession

28 October 2009

28 October 2009 | Allie Anderson

Rising oil prices could force a second global slump, an industry expert has warned.

Steve Robertson, director at energy consultancy Douglas Westwood, told SM if the cost of oil rises further it could end hopes of worldwide economic recovery.

Research conducted by the firm in the US earlier this year found when spending on oil reaches over 4 per cent of the country's GDP, it triggers a recession. This proportion of US GDP equates to oil prices sitting at around $80 (£48) a barrel, Robertson said.

Last week US light crude oil prices reached a 12-month high of $82 (£50) a barrel, but have since fallen below this level.

"The risk is that if prices carry on rising beyond the $80 a barrel we have been seeing, we could see a double dip recession," said Robertson.

It is difficult to predict how prices will fare going forward, he added, but if supply falls short of demand as economic optimism improves, it could lead to higher prices.

Damien Cox, researcher at energy procurement consultancy EnergyQuote, said in an unpredictable market "there is no reason why [prices] can't go to $90 (£55) a barrel if the dollar weakens further against the euro".

He added: "I don't think we will see the price hikes we saw last year. Prices are overvalued at the moment and there is no justification for them being as high as they are."

SMoct2009

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