Oil prices threaten growth in 2012

Oil prices threaten growth in 2012

By Conor Keane, Business Editor

Monday, January 09, 2012

IRISH economic growth in 2012 could be hampered by increasing oil prices ? fuelled by US growth and growing tensions in the Middle East ? made worse by a weakening euro.

The latest Bord G?is Energy Index shows that while a decrease in gas and electricity prices caused the index to fall 1% for the month of December, the index now stands at 143 ? 5% higher than in December 2010.

Bord G?is energy trader John Heffernan said Irish energy consumers face a triple threat of price increases in 2012, as demand for oil could increase from a US economy firmly back in growth mode and threats to supply from the Middle East, compounded by a weakening euro.

Oil is sold in US dollars and a weak euro pushes up energy costs. Oil prices hit a 150-year high in 2011, according to Mr Heffernan.

Economists are already downgrading Ireland?s growth prospects for 2012. Irish gross domestic product will rise by 1% in 2012, according to the median estimate of 11 economists surveyed by Bloomberg. This is well below Finance Minister Michael Noonan?s forecast of 1.3% expansion in 2012, on which budget calculations are based.

Any rise in energy costs will hurt Irish consumers and manufactures, eroding Irish growth prospects in 2012.

Commenting on the Bord G?is Energy Index for December, Mr Heffernan said: "The index recorded a 1% drop for December; however the impact of the decrease in fuel commodity prices was offset as the euro weakened over the month. This meant that in euro terms, oil and coal prices increased over the month."

Mr Heffernan said the ongoing European sovereign debt crisis, fears about global economic growth in 2012 and a mild start to the winter across Ireland, Britain and Europe, all contributed to put downward pressure on gas and electricity prices: "There are a number of strong influences that are putting downward pressure on fuel commodities including: the European debt crisis, fears of a slowing global economy in 2012 and mild weather across Europe.

"Should the euro continue to weaken versus the US dollar, eurozone buyers will not benefit fully from any price falls and would have to pay even more should prices increase."

"The average price of Brent crude oil posted a record high in 2011 as daily oil demand hit a new high of 89 million barrels per day, as growing demand from the emerging market countries continued. Prices were also supported by concerns about supply from the Middle East and North Africa," he said.

Mr Heffernan disclosed that the electricity element of the index was down 4% to 118.

"The average wholesale Irish electricity price for December closed 4% lower than its November equivalent, as unseasonably mild weather and reduced demand for electricity pushed prices downwards. In addition, as the cost of gas and carbon reduced in the month, the cost of producing electricity fell. The availability of hydro and wind power put additional downward pressure on prices," he said.

a d v e r t i s e m e n t

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This appeared in the printed version of the Irish Examiner Monday, January 09, 2012

Source: http://feeds.examiner.ie/~r/iebusiness/~3/Po3RtdFDGVs/

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