Surge in crude oil prices may spark a recession

A strong demand has been driving crude oil prices higher since last August, and many economists fear this could spark an economic recession in near future. Fluctuations in Brent Crude price, which currently stands at around $78.96 per barrel, tend to have a wider impact across different sectors.

Commonwealth Financial Network’s CIO Brad McMillan told USNews.com that oil prices were about $45 to $50 per barrel this time last year and the danger zone is around $81 to $90 per barrel.

Global oil demand was inflated primarily by the decision of the Organization of the Petroleum Exporting Countries (OPEC) to continue with the 2016-initiated move of cutting daily production by 1.2 million barrels. Apart from this, increasing tensions between Saudi Arabia, Israel, and Iran, as well as political traction in Libya and Nigeria are also creating a geopolitical risk.

Also, the long-term mega projects by energy giants have run short of investments. The US shale producers are unwilling to borrow money to raise production and regulate prices as they have already incurred massive debts trying to do so before. Crude oil demand is expected to be boosted by 2020 as demand for middle distillates increases, driven by shippers.

The increasing oil prices could put massive amounts of pressure on airlines and other companies in the industrial sector. As the prices reach a threshold, there will be an increase in financial market risks, which might kick off a recession.

A recent Bloomberg survey showed that US crude inventories are expected to fall for a third week by 2 million barrels. A decline of 250,000 barrels in the stockpiles is expected at the key pipeline and storage hub in Cushing, Oklahoma. So is a recession on its way? If the prices maintain its pace, bad news may be in store.