High oil prices could hurt global economic recovery – Moody’s

18 March 2011 16:52  [Source: ICIS news]

TORONTO (ICIS)--Persistent oil prices around $100/bbl will weaken the global economic recovery and hit producers in the auto, travel, and food and agricultural sectors hardest, global credit agency Moody’s said on Friday.

Furthermore, oil prices are likely to rebound over fears of nuclear meltdown at the Fukushima Daiichi  nuclear plant, 155 miles (249km) north of Tokyo, as Japan will need more oil to meet demand for power, Moody’s said.

Global oil prices fell immediately following the earthquake and tsunami that hit Japan on 11 March, reflecting expectations of slower growth in the world’s third largest economy.

“Ultimately, the effects that high oil and fuel prices have on businesses and consumers depend on a number of factors, with some far more exposed than others, especially since the severe oil spike and rapid price collapse seen in 2008,” Steven Wood, Moody's managing director in NewYork, said.

Wood added: “Hedging, though not a cure-all, will protect a number of companies, and many have also reduced their exposure to crude-based fuel.”

In the US, automakers are better prepared for higher oil prices than in 2008, but there could be credit implications for car firms if US gasoline prices top $4/gal for a longer time, Moody’s said.

In Europe, where drivers have historically been more fuel-conscious, a further significant increase in fuel costs could push them towards even smaller cars or alternative transportation. This, however, would pressure revenues for a number of European automakers, the agency said.

In the food sectors, higher oil prices would further boost costs for feed, fertilizer, equipment and transport in the food protein industry in the US, Asia and Europe, but to different degrees in each region, Moody’s said.

The credit agency added that the picture in Asia is complicated by some governments' agricultural subsidies, while in Europe, high crude prices will increase input costs for producers of raw materials such as beet sugar and starch.

Meanwhile, consumers cutting back on household spending would impact on the US packaged food industry and in the global travel and leisure sector, airlines are likely to push for fare increases and additional fees, the agency said.

In related news, a German statistics agency reported on Friday that the country's chemical producer prices rose 7.3% year on year in February, up 1.2% from January, mainly due to rising oil, gas and energy costs.

Read Paul Hodges’ Chemicals and the Economy Blog
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By: Stefan Baumgarten
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