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OPEC predicts that China will lead recovery and help boost world oil demand by 1%
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Confirming what many economists have been saying all year, The Organization of Petroleum Exporting Companies estimates that China and other developing nations will lead the global economic recovery in 2010, not the world's richest countries.
In it's October Monthly Oil Report, the 12-nation group said that China, India, Latin America and the Middle East will account for most of the increase in oil demand.The report cautioned, however, that the recovery will be "slow and weak."
This is significant news for the United States. It may mean a stabilization in the price of oil allowing businesses to better forecast future costs. It also means countries like China will continue to be in a position to buy the mounting debt issued by the US to pay for domestic programs like health care and, of course, economic stabilization initiatives.
The dollar dropped on the news. Recently, commodities like oil have substituted for a safe haven like the US dollar. This does not at all mean that the dollar is not considered a preferable vehicle in which to park short-term liquid assets. However, with rising dominance of developing nations, possible inflationary pressures exerted on the United States economy by enormous stimulus spending and a protracted low interest rate environment in the US, credibility issues for the dollar may arise with serious consequences for the US.
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