Oil price shocks usually do not derail economies, Berenberg says
Oil price shocks historically have not derailed economies but in the case of Europe, this time the outcome will likely hinge on whether or not the European Union joins Washington's embargo on Russian oil, Berenberg said.
In a research note sent to clients, Kallum Pickering, senior economist at Berenberg, pointed out that, with the exception of the 2008 financial crisis, GDP in advanced economies had tended to be higher one year after the peak in oil prices was reached.
Nevertheless, this time around the situation could be different, he cautioned, because inflation was already high when the European economy was hit.
"The tail risk to this call is obvious. If Russian oil supplies to global markets – 11% of the total – are cut in a major way, the resulting global supply shock would likely lead to a deeper near-term hit followed by a much slower recovery thereafter until other global producers compensate for the drop in Russian output," he explained.
On the flip side, Pickering also noted that whilst the price of a barrel of Brent crude oil had recently approached the all-time peak that it hit back in July 2008, when it averaged $133, in real terms prices remained approximately 36% below that peak.
The real or inflation-adjusted equivalent of the 2008 peak would be nearer $180 per barrel, he said.
"Futures curves seem to signal that oil prices will peak in the second quarter before falling to some degree thereafter as other global suppliers respond to higher prices with increased output," he added.
Nevertheless, the oil price shock was coinciding with supply and price shocks across a broad swathe of the commodities market.
Pickering forecast that many European economies would "stagnate" with a risk of a drop in GDP in the second quarter and said that the outlook for the third quarter was "uncertain".
He also pointed out that disruptions to natural gas supplies could pose a larger problem than the oil price shock.