Oil price rise a bigger threat to global economy than Greece, says HSBC

The runaway oil price has overtaken fears of a Greek sovereign debt default as the biggest threat to the global economy, according to HSBC.

oil well in Santa Cruz del Norte, Havana province
Brent crude surged to $128.40 a barrel on Thursday, the highest level since July 2008 Credit: Photo: EPA

"With Greece disappearing, at least temporarily, from the headlines, investors have quickly found a new source of anxiety thanks to the recent surge in oil prices," Stephen King, HSBC's chief economist said. "If the trend persists, a fragile economic recovery in the developed world could quickly be derailed and inflation could return to emerging markets."

Mr King argued that investors should be overweight in energy shares as "insurance" and foreign exchange investors should buy currencies of oil-producing countries such as Norway, Malaysia, Brazil and Russia.

Other analysts agree. "A rapidly increasing oil price is beginning to threaten prospects for recovery and better growth," Bjarne Schieldrop, chief commodity analyst at Swedish bank SEB, said. "Paradoxically, recent rises are largely due to improving economic sentiment but also tight supply. In addition, outstanding geopolitical issues present further major upside risks," Mr Schieldrop added.

Brent crude surged to $128.40 a barrel on Thursday, the highest level since July 2008, as reports of a pipeline fire in Saudi Arabia spooked markets already concerned about brinkmanship with Iran over its nuclear programme. There have also been supply disruptions in Syria, Yemen and South Sudan.

However, prices eased on Friday after Saudi official denied the reports, which started in Iran. Brent crude closed down $2.55 at $123.65.