-Caveat Lector- <A HREF="http://www.ctrl.org/"> </A> -Cui Bono?- from: http://www.aci.net/kalliste/ Click : <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- Oil Market Here Comes the Oil God wants America to have cheap energy, dammit. Both the US Federal Reserve and the European Central Bank are scheduled to meet this month. But the gathering that will probably have most influence on global growth and inflation this year is that of the heads of the Organisation of Petroleum Exporting Countries in Vienna, exactly three weeks from now. The oil producers are widely expected to agree to a significant production increase. The oil price, after all, has virtually tripled to a nine-year high in the past 12 months, with West Texas Intermediate selling for more than $30 a barrel and Brent Crude at about $28. Opec's successful production curbs (imposed in early 1999 and due to expire at the end of this month), combined with a cold snap on the US east coast this year, have driven stocks to a 20-year low, according to the International Energy Agency. The current imbalance between supply and demand, if left unchecked, could damage world economic growth while fuelling inflation. This is a point Bill Richardson, US energy secretary, has made during his latest flurry of shuttle diplomacy around the Gulf. Most oil exporters, foremost among them Saudi Arabia, agree. But how big a hike in output is needed? According to Sheikh Ahmed Zaki Yamani, chairman of the Centre for Global Energy Studies and a former Saudi oil minister, a production increase of 5 per cent, or 1.7m barrels a day, is needed to restore prices to about $20 a barrel. He believes that would be acceptable to the Saudis, though some of Opec's more hawkish members would rather see prices remain at current levels. But even if the Saudis get their way, it may not be enough. Merrill Lynch's oil team, led by Michael Rothman, calculates that inventories are being depleted by 2.9m barrels a day. An extra 1.7m barrels, even assuming 70 per cent compliance - which is to say that some countries actually produce even more than their newly increased quotas - would only temporarily reduce pressure on the oil price. As we head i nto winter, inventories will fall again, increasing pressure for Opec to raise output once more, perhaps by a further 1.5m barrels a day. At that point, according to Mr Rothman, all but three Opec countries - Saudi Arabia, the United Arab Emirates and Nigeria - will be bumping up against their production limits. In other words, there is a real chance of a capacity squeeze. As a result, Merrill last week raised its year 2000 oil price forecast to an average of $24 a barrel, significantly higher than Wall Street's $21.25 consensus, and cautioned about possible price spikes much higher than that. This has ramifications for economic growth. In the aftermath of Iraq's 1990 invasion of Kuwait, oil prices jumped to $41 a barrel. While that spike lasted just five months, it was enough to induce a global recession, albeit a shallower one than those that followed the oil shocks of 1973-75 and 1980-82. Nobody is suggesting a recession this time. For one thing, developed economies are now overwhelmingly service-based and therefore much less dependent on oil. The economic output per barrel of oil among the OECD countries has basically doubled since 1973. In the US, for example, energy now represents 3 per cent of gross domestic product, against 9 per cent in the 1970s. Similarly, the link between oil and commodity prices and inflation has broken down during the past decade. The old rule of thumb that a 10 per cent rise in commodity prices would trigger a 1 per cent increase in inflation has not worked well since 1990. Nevertheless, the rise in oil prices is already lifting headline consumer price inflation off last year's rock-bottom levels - particularly in the US. Lombard Street Research of the UK said recent increases in petrol and heating oil could add 0.5 per cent to overall US consumer prices, pushing headline inflation to more than 3 per cent in February and March. The Centre for Global Energy Studies forecasts that a sustained price of $30 a barrel or more would cut 0.8 per cent off US GDP growth, which is expected to be about 4 per cent this year. The developing world, which still relies much more on energy-intensive manufacturing, would be harder hit. With most of today's economic forecasts expecting a steady decline in oil prices during 2000, the prospect of an unpleasant oil shock is increasing. The Financial Times, March 6, 2000 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, All My Relations. Omnia Bona Bonis, Adieu, Adios, Aloha. Amen. Roads End <A HREF="http://www.ctrl.org/">www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are not allowed. Substance—not soap-boxing! These are sordid matters and 'conspiracy theory'—with its many half-truths, misdirections and outright frauds—is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRL gives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credence to Holocaust denial and nazi's need not apply. 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