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 The price of oil has dropped over a quarter since the summer to
below $85 per barrel, a level last seen in June 2010.
Energy imports for oil, natural gas and thermal coal cost the
European Union around $500 billion in 2013, with three quarters of
that being spent to buy oil, Reuters research shows.
This year's figure could fall by almost $25 billion to around $485
billion, and if oil prices average below $90 a barrel next year, the
overall import bill could fall as low as $425 billion, over $80
billion less than paid by the EU for imports in 2013.
Falling energy prices reflect a darkening world economic outlook but
they could temper any new downturn.
While headline inflation rates could be pushed lower, households and
energy-intensive industries in countries that rely on oil imports
will find their costs reduced, raising at the margin their ability
to spend and invest.
"Global oil prices have fallen in almost every currency and that
should lead to a boost in consumption," Bank of America Merrill
Lynch said on Wednesday.
Oil is the world's most important fuel but coal is the most
important for electricity generation. The price of coal <TRAPI2Yc1>
has almost halved since 2011.
Inflation is already noticeable by its absence in most of the world
and the euro zone is battling to ward off deflation.
Figures from China on Wednesday showed inflation hit a near
five-year low of 1.6 percent despite economic growth which is
expected to hold above seven percent this year. The British economy
looks robust yet inflation has dropped to 1.2 percent and U.S.
inflation was last reported at 1.7 percent.
CENTRAL BANK ACTION?
Some analysts expect that vista to force more action from central
banks.
"The low inflation readings will open the door to further targeted
monetary and fiscal easing. There is also less need for a strong
currency to offset imported inflation," said Dariusz Kowalczyk,
senior economist at Credit Agricole CIB in Hong Kong.
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But the European Central Bank, for one, faces fierce opposition to
printing money, not least from Germany's powerful central bank, and
is still waiting to gauge the impact from a raft of measures to
boost credit and lending.
The euro has dropped nearly 10 percent against the dollar since May.
That will partly offset the fall in dollar-denominated oil but will
push up inflation.
More likely might be a delay to monetary tightening in those
countries that are recovering. Federal Reserve policymaker John
Williams told Reuters that a U.S. interest rate rise could be
delayed if inflation started to drop persistently away from the
central bank's 2 percent target.
Analysts initially said the oil price decline was largely due to
greater supply from the North American shale boom, the tapping of
new offshore reserves worldwide and greater output of coal.
But they have also begun pointing to a slowdown in demand, citing
China's ebbing thirst for oil and what could be its first drop in
demand for coal in over a decade as economic growth slows.
"Much of the past year in commodity markets has been spent
considering the impact of strong supply growth ... However, demand
is becoming an increasing source of concern," Australian bank
Macquarie said on Wednesday in a research note.
"The pickup in global GDP growth that began at the start of 2012 was
becoming a distant memory by mid-2014," it said.
(Editing by Mike Peacock and Anna Willard)
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