Commodities: Risk of upward pressure on oil prices

Our other predictions for 2014:

  • Brazil is our favourite to win the FIFA World Cup in 2014. We think its world-class track record combines its home country advantage to give it the edge it takes to win the Cup.
  • We project the GDP of all but one of the G7 economies to rise back above their 2007 levels. Italy the only exception.
  • By the end of 2014, we expect that 22 economies around the world will still be smaller than in 2007. Of these, nine will be in the Eurozone.
  • We anticipate 13 economies will grow faster than China in 2014, including Bhutan, Gambia and Libya. Meanwhile, Sub-Saharan Africa will grow faster than global GDP (at market exchange rates) for the 14th year in a row.

Risk of upward pressure on oil prices: In 2014, we expect the pick-up in growth in the US and the Eurozone to lead to higher demand for oil. The effect of this, coupled with persistent disruptions to oil supply, either due to geopolitical reasons or logistical issues (e.g. lack of extracting or delivery capacity) could herald higher oil prices.

We used the National Institute Global Econometric Model (NiGEM) to estimate the likely scale of a $20 per barrel increase in oil prices across the global economy and for selected major national economies covered by the model. Figure 2 shows that Japan, the US and the Eurozone are the three major economies that are expected to experience a slowdown in growth if this scenario materialises. India, however, is projected to fare the worst out of the BRICs, while Russia is estimated expected to record strong GDP growth because of the importance of energy-related exports.

Figure 2: Change in the 2014 national GDP growth rates in a scenario where oil price increases by $20 per barrel

Change in the 2014 national GDP growth rates in a scenario where oil price increases by $20 per barrel

Source: PwC analysis using NiGEM