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The Influence and Limitations of Oil on Risk and Global Growth

The Influence and Limitations of Oil on Risk and Global Growth

John Kicklighter, Contributor

Talking Points:

• A nearly 4.5 percent rebound in crude through the second half of this past week doesn't turn the trend

• Having hit 12-year lows after a relentless bear trend, oil has been labeled the key to markets and global growth

• While energy prices do have significant sway over the system, its influence is not omnipotent

See the DailyFX Analysts' 1Q forecasts for the Oil as well as equities and the Majors in the DailyFX Trading Guides page.

It is no wonder why oil and commodities are a common topic for all market participants - whether they trade that asset class or not. The collapse crude in particular has suffered the past two years has been severe and it has also notably preceded a decline in the wide financial system that is just starting to unnerve investors. This notoriety has led the market to attribute greater powers of influence to energy prices when it comes to broader market sentiment and global growth than is reasonable. Oil prices can have knock-on effects for the financial system via producers (emerging market producers and energy companies unable to cover their loans) and it can churn GDP, but it is unlikely to override themes like risk trends and monetary policy - especially in the week ahead. We focus on the market influence of the headline-darling, oil, in this weekend Strategy Video.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.