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French Version

Record high oil prices reflect market vulnerability

Opec may once again raise supply
IMF says concerns will not compel it to revise its forecast for global growth

World oil prices charged up to new record high levels close to $45 on Friday as fears of disruption to exports from Russia highlighted the market's vulnerability to supply shocks, analysts said. OPEC's President Purnomo Yusgiantoro said the cartel was looking at increasing production by 1 to 1.5 million barrels per day (bpd) to help reduce prices, although no decision would be made until next month.

International Monetary Fund Managing Director Rodrigo Rato on Friday dismissed concerns that high oil prices would reduce global growth in 2004, saying the IMF did not expect to downwardly revise its April forecast of 4.6 percent global growth.

"We see a strong recovery of the world economy that in our opinion doesn't give us reason to review our prediction of last April," Rato told reporters after a meeting of East African leaders in Uganda.

Rato said governments should "re-address" their energy policies to adapt to the new environment of high oil prices.

New York's benchmark contract, light sweet crude for delivery in September, climbed to a new historic peak of $44.77 per barrel in pre-opening electronic dealing after reaching a record close Thursday of $44.41.

Growing anxiety about the potential effects of high oil prices have set stock markets sharply back.

Analysts said the oil market's reaction to news that Russia had backtracked on a decision to allow the troubled oil giant Yukos access to its bank accounts underscored the lack of spare capacity in the world oil industry.

New York's West Texas Intermediate (WTI) light sweet crude could test $45 a barrel within days and could even breach $50 during the US and European winter, they warned.

"We're expecting prices to come off in the third quarter, but there remains a possibility that this winter, if we have a supply loss or if simply demand doesn't slow down, then at some times you could see WTI test 50 (dollars)," said Societe Generale economist Deborah White.

"We're in uncharted territory. No one knows. But if the market reacts this way to a relatively small supply loss then think what happens if we had major problems in Iraq or if Yukos were out for even weeks." Yukos will be forced by the end of next week to shut down rail shipments that account for a quarter of its export trade if its bank accounts remain frozen.

"If Yukos can produce then there should be someone in Russia who can step in, buy the oil and pay to get it transported," said White.

"But there's likely to be some disarray as that occurs." Russia's justice ministry said Thursday it had "recalled" an earlier decision allowing Yukos to access its current accounts to keep its operations running while paying a massive tax bill.

All of the financial resources that have or will enter the company's accounts would be seized or channeled into the Russian government's budget to pay off the tax debt,"the ministry said.

Traders largely shrugged at OPEC's latest reassurances that it was on standby to increase oil supplies by up to 1.5 million barrels, to help to cool prices.

OPEC's Yusgiantoro said the cartel was already overproducing to counter soaring prices and was looking at further increases, although no decision would be made until it meets next month.

"We are ready to increase production between 1.0-1.5 million bpd and this issue will be discussed in the September 14 meeting in Vienna," he told reporters in Jakarta.

Beirut,08 09 2004
The Daily Star
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