++++++++++++++++++++++++++++++++++++++++ World oil prices broke through the psychological $US50-a-barrel level in Asian trading yesterday, raising further concerns about the likely impact on global economic growth of sustained high prices.
The short-term disruption to US supplies due to hurricane Ivan and rebel fighting in Nigeria combined to push oil prices higher.
The fears about the impact on economic growth from sustained oil price strength hit sharemarkets, with the Dow Jones Industrial Average sliding below 10,000 points and Asian markets falling.
The oil price is now 75 per cent higher than a year ago, and concerns about possible disruptions to Middle East supplies due to the Iraq crisis, coupled with supply shortages, have spooked the market.
"There is a lot of panic-buying by end users," said oil strategist Ng Weng Hoong at Energyasia.com in Singapore, adding that he believed the price would go still higher.
"When they cracked $US50, now there is a trigger for $US60. It broke the barrier ... it's going to reach the next target," he said.
The Organisation of Petroleum Exporting Countries (Opec) admitted its decision to boost its production target by 1 million barrels per day, beginning in November, had failed to calm the market.
Global bond yields dropped further yesterday, on heightened expectations that oil prices gains reduce the chances of aggressive interest rate increases by the US Federal Reserve.
The direct impact on Australia, however, is muted as it produces most of the oil it consumes, and is a net-exporter of other energy products whose prices should benefit from sustained high oil prices.
However, Finance Minister Nick Minchin conceded yesterday that high oil prices could "cause difficulties" for Australia to the extent it weakened global economic growth.
By mid-afternoon in Asian trading, the benchmark light sweet crude oil for delivery in November traded at $US50.43 a barrel, up US79¢ from the close of Monday's regular Nymex session in New York Allowing for inflation, oil prices are now around 40 per above their long-run average since 1970, and are close to the price peaks achieved in two of the past three oil prices shocks since then.
Markets are now more focused on the risks to economic growth as stronger global competition is limiting the ability of business and households to pass on cost increases through higher wages and prices.
US official interest rates remain relatively low at just 1.75 per cent, but as a significant oil importer, America has already had its promising economic recovery of earlier this year dented by rising oil prices.
However, the White House said yesterday that the US Department of Energy was weighing loans of oil from the strategic petroleum reserve but that the stockpile should not beused to "manipulate prices".
Spokesman Scott McClellan said the strategic petroleum reserve was to be used for national emergencies or physical disruptions in the supply.
The US has lost more than 11million barrels of oil production in the past two weeks, according to US government data. Gulf of Mexico output is still down nearly 500,000 barrels a day after the devastation of hurricane Ivan.
In Nigeria, the rebel Niger Delta People's Volunteer Force plans a new offensive against the military across the whole Niger delta, which pumps all of Nigeria's 2.3 million barrels per day output. Nigeria's largest oil producer, Royal Dutch/Shell Group, said it saw no reason to discontinue oil operations in Nigeria's delta, noting it had received similar threats previously.
The economic impact on Asia and Europe of sustained high oil prices could be even greater as these regions are even more reliant on imported oil than the United States.
The two latest triggers for higher oil prices were threatened rebel attacks in Nigeria, Opec's fifth-largest producer and the world's seventh-largest exporter, and a slump in US oil inventories because of disruptions caused by Hurricane Ivan.
But these a just two of many supply problems afflicting a thirsty oil market. Other have included terrorist attacks in oil-producing regions of the the Middle East, and political instability in Russia and Venezuela.
Supplies are extremely tight and the higher oil price so far has not rationed demand much at all from heavy users China and the US.
The US summer driving season and a strong manufacturing recovery has kept US demand at record levels. And despite efforts to slow the runaway Chinese economy, its demand increased almost 40 per cent over the first eight months of this year.
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