High oil prices have not yet had a significant impact on world economic growth, the Organisation of Petroleum Exporting Countries (OPEC) said yesterday, but the group warned that the global recovery could still be in jeopardy if prices remained at current levels.
The news helped further push up the price of oil, demand for which is closely tied to the economic health of big consumers, such as the US, Europe and China.
"The cyclical impetus behind the global economic recovery is strong and unlikely to be derailed if oil prices fall below $35 before the end of 2004," the group said in its latest monthly oil market report.
OPEC, which supplies 40 per cent of the world's oil, pointed to a recent report by the National Institute for Economic and Social Research in London.
The report predicted that if high oil prices were sustained for two years, they could reduce economic growth in Europe and the US by 0.2 percentage points in 2004 and 0.4 percentage points in the US in 2005.
Oil futures prices in New York yesterday hit a new record of $47.35 a barrel, but lost most of their 60-cent gains after the US reported that imports had risen by 883,000 barrels to 10.407 million last week.
OPEC's conclusions were underlined by falling US consumer price data released on Tuesday that showed inflation was in check despite the increase in oil prices.
Mr Ian Stewart, chief European economist at Merrill Lynch, agreed that high oil prices appeared to have had little impact on economic growth.
"There has been a slight exaggeration on this issue," he said. "The degree of price increases now is not as great when compared with that in late 2001, early 2002.
"It is very unlikely that high oil prices would persist at this level and I believe in six months the prices would come down."
Economists expect global growth in 2005 to drop to 3.2 per cent, from a forecast of 4 per cent this year, helping ease oil prices.
But Mr Binit Patel, senior global economist at Goldman Sachs, said the slowdown would have more to do with rising interest rates and the receding effects of US tax cuts for cash-strapped consumers than oil prices.
A significant difference between this and past oil price rises has been the role of record - and largely underestimated - demand, particularly from China and the US.
Chinese oil demand grew 21 per cent in the first half of this year, while that of the US - by far the largest consumer of oil - was up 3.5 per cent.
This has pushed suppliers to pump at full capacity and consuming countries to maintain low inventories, increasing the concern about a shortage if there were to be a disruption of supply. - (Financial Times Service)
