Q4 GDP revised oil bubbles threat

In the fourth quarter increased last year's GDP wasn ' t so strong that estimate at the outset, the U.S. Bureau of Economic Analysis reports. It's discouraging for all the usual reasons, with the fact that the economy must momentum can muster if coming oil shock, courtesy of the turmoil in the Mideast.

As for the last three months of 2010, the United States economy increased at an annual rate of 2.8%-down of an initial estimate of 3.2%. Why cutting hair? "The downward revision to the percentage change in real GDP primarily reflects a revision to the increase in imports and revisions downward State and expenditure of local government and personal consumption (PCE), partly offset by an upward revision to the Declaration of exports," according to the BEA press release.

Each point of new information here in the fate is filtered through the prism of oil prices. Until such time as the Mideast soothes, at least in relative terms, the threat of rising crude prices will be lurking behind every number with non-subtle reminder that graduate sometime energy costs are a front wind growth. Are we at this point? Probably. The good news is that oil prices have stabilized in the range of mi - $90 / barrel in New York this morning, after breaking North of $100 yesterday. But the events on the ground in Libya and elsewhere in the Mideast don't offer confidence to predict that prices of energy did boost again. Political upheavals from the region racing almost certainly has legs.

The recent outbreak of price energy based questions: have we reached the point of demand destruction? This is the title of today research note by analysts energy joint research. This is a good question, since even requested oil are elastic. Higher prices inspire finally low consumption, helping drive prices lower. According to Neil Beveridge and Zhang Liang latest analysis on this point:

Peak to the trough of the last cycle, demand destruction almost exclusively focused on developed economies who bore the financial crisis. Oil markets OECD demand has dropped from 50 to 45mmbls between the fourth quarter of 2007 Q1 2009 accounting for almost all of the decline in global demand. Given that the increase in unemployment has been a decisive factor of demand destruction in OECD countries, it seems unlikely (that unemployment becomes truly worst) that we see the same levels of demand destruction in the West, even

at current prices.

What is happening in emerging markets, which now represent 50% of global demand, may be more important this time. For a number of reasons, emerging market demand tends to be more sensitive than GDP in sensitive price, due in part to increased industrial demand for oil, but also partly due to the use of subsidies. Although China and the India reduced subsidies fuel prices thanks to reform fuel pricing, 60% of India oil demand still subsidized and refining losses began to appear again in China: the oil price spike. In diesel and gasoline of the Malaysia and the Indonesia also prices remain heavily subsidized and will increasingly act as a drag on these economies. However, credit to the Viet Nam who raised prices of fuel from 24% last week, which has implications for the application.

For the time being, the main risk is less mode on oil and, more generally, on uncertainty. Weather today reports:

There is a growing sense that the Middle East, which has the largest oil reserves of the planet, has deeply unstable by the Tunisia and Egypt revolutions and uprisings in Libya, Bahrain and the Yemen. Amrita Sen, an analyst with oil for Barclays Capital in London, says: "the question now is, then, is Algeria." Algeria, a major oil producer bordering the Tunisia and the Libya has long been regarded by observers of North Africa conducive to the revolution after determined by the military since autocrats cancelled elections in 1991. The oil companies who sign long-term production and sharing revenues from contracts with Governments, shaken by political uncertainty sweep area. They ask, says Sen, who are we to deal with am? "Who is am able at the"? This uncertainty leads to higher prices, which in turn slows down the global economic recovery.

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