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Fears raised over higher price of oil

Higher oil prices have hurt the global economy and could further hamper growth, bolster inflation and increase unemployment over the next two years if prices stay at their current levels, according to a study by the International Energy Agency released on Monday.

"World GDP growth may have been at least half a percentage point higher in the last two or three years," the study found, "had prices remained at mid-2001 levels."

If oil prices stay at their current level of more than US$35 a barrel, more than US$10 a barrel above their level of three years ago, "world GDP would be at least half of 1 percent lower -- equivalent to US$255 billion -- in the year following a US$10 oil price increase."

In New York, crude oil for June delivery rose US$0.83, or 2.2 percent, to US$38.21 a barrel on Monday.

The US, which still produces about 40 percent of the oil it consumes, would suffer less than other developed countries: The report forecasts a drop in GDP of three-tenths of a percentage point. Still, the agency found, continued higher prices would cause unemployment in the US to "worsen significantly in the short term."

For developed nations as a whole, the effect of higher oil prices would include a rise of one-tenth of a percentage point in the unemployment rate, a rise of five-tenths of a point in consumer prices for this year and a reduction in economic growth of four-tenths of a point for the next two years.

The report attributed higher oil prices, in part, to "supply-management policies" by the Organization of the Petroleum Exporting Countries, but it did not further explore the causes. At its most recent meeting, one month ago, OPEC members, led by Saudi Arabia, decided to restrain production further.

Saudi Arabia, according to the administration's data, has been America's largest source of imported oil over the past few years, but this year it has been replaced by Canada.

Saudi supplies of crude oil in January and February dropped by almost 20 percent compared with the same period last year.

OPEC's production cuts, Saudi Arabia's dealings with Washington and higher gasoline prices are now a staple on the presidential campaign trail.

These issues and the accompanying debate were on display here last week in a conference on US-Saudi relations sponsored by the Center for Strategic and International Studies and the US-Saudi Arabian Business Council.

Saudi Arabia's oil minister, Ali al-Naimi, said at the gathering that "prices are being driven by other factors" beyond supply and demand, including fears of instability, hedge fund investments in the commodities markets and refining bottlenecks, especially in the US.

Naimi said it was wrong to blame OPEC for higher prices and he offered to "invest in two new refineries" to address gasoline demand in the US.

But Kyle McSlarrow, the deputy secretary of energy, said the "price of crude is driving the cost of gasoline."

In a similar vein, Guy Caruso, the administrator of the Energy Information Administration, said at the conference that OPEC production cuts ranked higher as a cause for increased gas prices than tightness in the US refining market.
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