What was inconceivable just a couple of years ago is now everyday reality. Oil is trading at around USD 125/bbl. Prices have doubled in the last year and we have not necessarily seen the end of it!
High energy and food prices are already a headache for the worlds central banks, coming as they do at a time of stagnating growth, not least in the West. This week it was the Bank of England that sounded the alarm, warning that inflation will not permit interest rate cuts in the coming year despite weaker growth. In reality, though, the central banks inflation problems are not necessarily yet over. Like everyone else, central banks are tending to assume that commodity prices have peaked, and that the direct effect on inflation will cease one year ahead. We share this view, and do not see commodity prices continuing to soar in 2009, although we do expect a slight overall increase.
But what if ? There is certainly no guarantee that oil prices have peaked. We are still seeing plenty of prob-lems on the supply side in the oil market, and demand in China and the Middle East just keeps on growing due to prices being kept artificially low through public sub-sidies. Nor is there any guarantee that demand for gasoline in the USA in the coming months during the all-important driving season will be as weak as many expect. If Americans choose to use their tax rebates to fill up their mobile homes and criss-cross the continent as they normally do, oil prices may very well climb fur-ther in the coming months. That said, we reckon that oil prices are approaching levels that will be harder and harder to explain on the basis of the fundamentals so perhaps there is some hope.
