Sun, Oct 03, 2004 - Page 10 News List

G7 leaders anxious about oil prices

UNCERTAINTY Finance ministers and central bankers of the Group of Seven industrial powers urged oil producers to provide adequate supplies to help prices normalize


Locals fish with a canoe near the Mobil oil terminals on Bonny Island, about 60km from the oil-producing city of Port Harcourt in Nigeria's Niger Delta area, on Friday.


Group of Seven leaders are worried about high oil prices derailing the global economy, but have little means to influence the marketplace, analysts say.

G7 finance ministers and central bankers, in a statement following talks on Friday, suggested that oil prices -- which closed above US$50 for the first time in New York on Friday -- appear to be the main risk to an otherwise strong global economy.

"Oil prices remain high and are a risk," the G7 said. "We call on oil producers to provide adequate supplies to ensure that prices moderate."

"Right now, oil prices are causing an economic headwind," said US Treasury Secretary John Snow after the G7 talks.

"The geopolitics of oil, and current uncertainties, are causing a short-term phenomenon. The finance ministers and I are committed to promoting policy reforms in each of our countries to speed the return of more reasonable costs," Snow said.

But analysts said most of the factors are beyond the control of the G7, which represents the seven richest industrial countries.

"The problem is that oil markets are tight as a drum and demand is growing faster than supply," said Nariman Behravesh, chief economist at the economic research firm Global Insight.

"It's not as if OPEC is manipulating the market. There's really not much anybody can do until the investments now being made bring some fruit."

Behravesh said the G7 is concerned, however: "If oil prices stay at this level or move higher it could derail the global economy."

Joseph Quinlan, economist at Bank of America, said it would be a stretch to think the G7 can "jawbone" the oil markets.

"I think the oil market will change when global growth slows," he said.

"The G7 can be effective in currency markets but they have no real history in the oil markets," Quinlan said.

Behravesh agreed, but said the G7 nonetheless wanted to express its concern about a major risk to global economic growth.

"Clearly they're worried, and I think this reflects a worry about how much oil prices will affect growth. But it's not that the G7 has much influence. They don't," he said.

In an effort to show a balanced view, the G7 statement also called on consumer nations to increase energy efficiency and called for more transparence in global markets by getting more information about supply and demand, principally through the International Energy Agency.

The statement came after New York crude oil futures closed at their highest level ever.

The light sweet crude November futures contract on the New York Mercantile Exchange closed up US$0.48 at US$50.12 a barrel, posting a record close, on the latest Nigerian worries.

European Central Bank President Jean-Claude Trichet called the problem serious.

"All we are observing today is not encouraging," Trichet said, adding that if prices remain high it "could certainly hamper the global economy."

Snow said the G7 may be able to take some of the speculative fever out of the market.

"We're urging the countries with reserves to do everything they can to make sure that the supplies are adequate to meet market requirements," Snow said.

That "will help deal with some market uncertainty, which I think is feeding some speculation which is taking the spot price well above the fundamentals in the markets," the US official said.

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