The global economy has withstood more than a year of high oil prices since the Iraq war preparations began, but analysts warn another price shock would slam on the brakes.
Danger signals would flash if prices breached US$40 a barrel, economists said, though the OPEC was unlikely to let things deteriorate so far.
Freezing US winter conditions, lower US commercial crude oil inventories and supply interruptions sent prices of light sweet crude above US$36 a barrel last month -- the highest since President George W. Bush geared up for war in Iraq.
After falling back, supply concerns again pushed New York's benchmark contract upwards Friday, sending light sweet crude for delivery in March up US$0.58 to US$34.56 a barrel.
"It does not look like the oil price will go down any time soon and that is in part because of the dollar depreciation -- OPEC wants to maintain their purchasing power," said Wells Fargo Banks chief economist Sung Won Sohn.
OPEC members agreed on Tuesday to cut output by about 10 percent by April 1, supporting world crude prices despite scepticism in the market about the cartel's ability to carry out its decision.
The impact of the high oil prices on the economy had been muted so far, Sohn said.
"It is like a tax increase, but we have had a tax cut so the effect of the higher price of oil has not been really severe," Sohn said.
Higher oil prices had not repeated the cycle of the 1970s and 1980s, when they accelerated a wage price spiral, leading to higher inflation, the economist said.
But "the worst possible combination is that the price of oil goes up to 40 or 45 dollars a barrel -- that could really break down the US and global economies," Sohn said.
"I don't expect that, but that is one thing that we worry about," he added. "Hopefully, OPEC is smart enough to understand that if we go into recession it does not help them."
Oppenheimer energy market analyst Fadel Gheit said oil prices would eventually bite, however.
"There is no way that the economy will continue to grow at the current rate while we have oil prices at this level," he said.
Gheit said he believed higher prices were in the short-term interests of the US administration because they boosted oil income for Saudi Arabia, enabling the kingdom to repel terrorism and maintain stability, and bolstered Iraqi export income.
"But in my view there is absolutely no justification whatever for oil prices -- I truly believe that there are absolutely no supply shortages and demand is not as strong to justify the current price," he said.
Dealers had been unnerved by the Department of Energy's announcement on Friday that it had awarded five contracts to deliver 104,000 barrels per day to the US strategic petroleum reserve, he said.
The reserve, an emergency supply stored in huge underground salt caverns along the coastline of the Gulf of Mexico, already stands at 641.3 million barrels.
US President George W. Bush announced in November 2001 a plan to fill the reserve to its 700 million barrel capacity.
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