Oil powers the global economy and its price has now exceeded $50 a barrel. The cost of money broadly governs investment and there is every indication that the interest rate cycle has turned. The two are closely linked. High oil prices have an inflationary effect on costs. The massive increases of the 1970s led to hyperinflation and correspondingly high interest rates. Could we be about to witness The same thing again? The Organization of Petroleum Exporting Countries (OPEC) then controlled half the world's oil supply; now it is down to a third. It does, however, still hold two thirds of world oil reserves. There is great debate within OPEC over whether production should be increased in order to bring the price down. Unfortunately, most members would lose money if this happened, particularly if it fell to the old target of $25-528 a barrel. There is also a view that OPEC is already producing more than current quotas and that a mooted extra two million barrels per day would make little difference to the price.
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