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Europe Watch

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"The stone age came to an end not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil." So said Sheikh Yamani, the Saudi oil minister during the 1970s oil shocks. Over the past five months, oil prices have halved and some commentators have argued that this is precisely because the Saudis, still flush with oil, are trying to price out shale gas production. Others have argued that we are simply at the end of the commodity super-cycle, with structurally lower Chinese demand a trigger for the correction. Either way, the immediate impact has been telling for the Nordic region, particularly in Norway as one of the world's largest oil producers, with output broadly similar to that of Russia.

The economic shorthand is that a fall in oil prices shifts purchasing power toward consumers and away from oil producing governments. This has been especially the case in markets such as Norway where the price cuts have prompted central bank interest rate cuts. However, with much of Europe already seeing very low consumer price inflation rates, the added deflationary impact of declining oil prices is arguably more damaging than helpful.

Source : CBRE Global Investors

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