Article by Shaw Factoring
TUESDAY, 03 MAY 2011 10:11WRITTEN BY GLEN ASHER
In the latest edition of the International Monetary Fund’s World Economic Outlook publication, the IMF dedicates a chapter entitled “Oil Scarcity, Growth and Global Imbalances” to an examination of the world’s oil markets and the impact of growing oil scarcity on the world’s economy. In this document, the IMF seeks to answer the current status of oil scarcity, how oil scarcity will impact the global economy and how oil scarcity will impact economic policies around the world.Now that the price of both Brent and West Texas Intermediate seem solidly positioned above 0 per barrel for the first time since 2008, this is a timely study. Demand for oil has risen and, for some major consumers such as China, consumption levels have reached new records. Since oil is central to the world’s economy, the impact of oil price volatility is key to economic growth and security. While oil prices have risen and fallen over the past 4 decades, it is only now that the issue of looming oil scarcity is becoming increasingly discussed.The authors of the report believe that the world is, in fact, reaching a point of increasing oil scarcity. Demand from emerging economies is acting in concert with decreasing levels of growth in supply resulting in increasing tension in the world’s oil markets. The IMF distinguishes between an absolute drop in supply (decreasing absolute daily oil production level) and a drop in the level of oil supply growth. If oil supply growth were to drop by one percentage point, annual global economic growth would slow by an annual rate of one-quarter of a point over the medium to long term. On the other hand, a steady decline in absolute oil supply levels would have a much greater negative impact on the global economy even if there is an increase in substitution of other energy sources in the place of oil. As well, the pace of the rise in oil scarcity will also affect the level of impact on the world’s economy; should there be sudden downward trends in supply, the economic impact will be far greater than if supply constraints were gradual.Let’s start by looking at the concept of oil scarcity and the extent of the issue. To put the importance of oil to the world