Darius Snieckus
OGJ Online
LONDON�Economic growth in the world's major industrialized nations could slow by some 0.4 percentage points next year if oil prices are not brought down from their $33/bbl-plus perch, according to the latest calculations by economists at the Organization for Economic Co-operation and Development (OECD) think tank.
A per barrel price that persisted at $33 could chip 0.3% off expected growth in the US, 0.6% off growth in Japan, and 0.5% off growth in the European Union (EU), said the OECD in a report published yesterday at the International Monetary Fund (IMF) / World Bank meeting in Prague.
A rise in consumer price inflation would be another fallout of a sustained high oil price, the OECD believes, with the US, Japan, and the EU likely to see increases of 0.5%, 0.6%, and 0.8%, respectively.
Inflation linked to an overheated oil price would have its most direct impact on the EU as a reflection of its "stronger wage and prices," while Japan would see the worst of the output and current account effect of the high cost of a barrel of oil.
The new OECD figures come following a revision of the organization's Economic Outlook 67, finalized in May, which set out a "broadly favorable" forecast for global economic growth and inflation.
Nonetheless, OECD economists say an oil shock like that in the mid-1970s is "unlikely to have negative [economic] impacts of the same magnitude as on similar occasions in the past" for three reasons, not least of which is that the "average" OECD economy has greatly diminished its dependence on oil over the last 25 years.
No new oil shock
The OECD also takes courage form the fact that oil prices, in real terms, are "still below the levels recorded after the second oil shock at the end of the 1970s;" and that, in contrast to previous price shocks, OECD economies are not currently "overheating" and inflation is under control.
Working from the International Energy Agency's assumption that Organization of Petroleum Exporting Countries (OPEC) crude production capacity and non-OPEC oil supply will each climb by around 1% against global demand�and that fears of product shortages or distribution problems tied to refinery or tanker capacity will not materialize�the OECD foresees the oil price declining "moderately over the next 12-18 months.
"Oil futures suggest that oil prices would decline moderately from a fourth quarter 2000 peak, but stay above $30 through the first quarter 2001, before falling back gradually towards $27/bbl at the end of 2001," said the OECD, noting that some market observers "take a more bearish stance."
In the wake of the US government's decision to release 300 million bbl or emergency crude from the nation's Strategic Petroleum Reserve to help cool oil prices, EU finance ministers announced that they would be meeting Friday to discuss the possibility of member states following suit. The release of European oil reserves would represent the first time EU states had joined forces to use their collective oil reserves to lower the price of oil.
Brent crude was listed this morning on the International Petroleum Exchange (IPE) at $32.05/bbl for November delivery and $31.20 for December, up by 80� last Friday's close.
No pushing OPEC
Meanwhile, OPEC Secretary General Rilwanu Lukman yesterday renewed his call for "co-operation and collaboration" among petroleum processing and consuming countries to take some steam out of the volatile oil price. The OPEC News Agency reported that Lukman, addressing a press conference in Caracas in the run-up to this week's second summit of OPEC sovereigns, heads of state and government, stressed that if the extra 800,000 b/d OPEC members agreed to pump on to the market starting on Oct. 1 did not stabilize the oil price, that the organization would be willing to increase its output by another 500,000 b/d
"OPEC is interested in having the price of a barrel of oil at about $25/bbl," said Lukman. "All over efforts are aimed at bringing the price down to this level, [but] we are not going to allow ourselves to be pushed to put more barrels on to the market than are necessary."
However, the London-based think tank, the Centre for Global Energy Studies (CGES), pointed out recently that any further increase to recently raised output by the 11 OPEC nations will do little to counteract price spikes this winter "as any extra crude produced now will not reach consumers in time."
"OPEC need to have boosted output much earlier in the year to allow product stocks to have been rebuilt before winter�it is now too late," stressed CGES.