G7 warning over rising oil prices

Finance ministers from the

Group of Seven (G7)
leading industrial countries
have warned of the
dangers to the world's
economy from higher oil
prices.

The G7 was responding to

news that the price of oil had Ministers warned that global imbalances
closed above $75 a barrel in must be tackled
New York for the first time.

US-Iran tensions and rising demand are being blamed for the
increase.

In a statement after their Washington meeting, the G7 said

that although the world economy was in good shape, oil
prices could throw things off course.

The Japanese Finance Minister Sadakazu Tanigaki said that

while there had not been a risk of inflation so far, the current
high oil price meant they would have to monitor the situation
closely.
The demand pressures on
oil are such that we need a
UK Finance Minister Gordon long-term solution to this
Brown said rising demand was
just as much to blame as Gordon Brown
instability in some major oil Send us your comments
producers, such as Iran.

"Asia now takes a third of the world's oil. Where, at one point
a few decades ago, it only took around 10%.

"Therefore the demand pressures on oil are such that we

need a long-term solution to this, better transparency, more
production, more drilling, more investment, more
petrochemical investment in particular," he said.

The G7 countries - the United States, Japan, Germany,

Britain, France, Canada and Italy - said China needed to
allow its currency to move more freely, in order to help
reduce its huge trade surplus with the rest of the world, BBC
Correspondent Mike Fox reports.

But the ministers also pointed to imbalances in the US

economy, and said tackling global imbalances was a shared
responsibility requiring action by every region of the world.
NEW DELHI: World Bank President Robert B Zoellick and Prime Minister Manmohan Singh have
expressed concern over the impact of increasing oil and food prices in the international market.

"Both the Prime Minister and I independently expressed concern about some of the effects of continuing
high oil prices and high food prices," Zoellick, who met Singh yesterday, told newspersons here today.

One way to deal with the problem is to improve energy efficiency, he said, adding that it would also be
helpful in tackling the issues concerning global climate change.

The crude oil prices have been rising incessantly and are near the 100 dollar a barrel mark. Concerned over
the impact of high crude prices on profitability of oil marketing companies, petroleum minister Murli
Deora met the Prime Minister yesterday to explore the options to deal with the problem.

Reserve Bank governor Y V Reddy too has recently underlined the need for at least partial pass through of
the crude oil prices in the international market.

Referring to rising food prices in the global market, Zoellick said though it would be beneficial for the
farmers, "it can also increase the prices for consumers."

The World Bank, he said, can help India ease the process of transition for farmers as they move from basic
crops to commercial crops.

Rising oil prices to dominate world economy

REUTERS
SINGAPORE/LONDON, Mar 27: Rising oil prices will dominate the world economy
over the next 12 months, acting as a drag on the prospects for a global recovery, Warburg
Dillon Read's chief global economist, George Magnus said on Friday.

"From the perspective of a global recovery, we wish it rather wouldn't happen, but it will
be a drag rather than a brake" on recovery, Magnus said. He said rising oil prices risked
putting fears of inflation back on the global economic agenda, triggering jitters in
securities markets over possible interest rate moves. "Potentially this is very serious
business," said Magnus, in Singapore to brief clients on his global economic outlook on
the third leg of a tour of Asian markets. Magnus said he expected Brent crude to hit $15-
$17 per barrel by October, forced up from a 12-year low of $9.55 by a combination of
rising demand and a deal struck this month by the Organisation of Petroleum Exporting
Countries (OPEC) to cut production by 1.7 million barrels per day.

"Serious inroadswill be made into the overhang of oil inventory," Magnus said,
forecasting that about 75 % of the agreed cutback would be achieved. But the price hike
was temporary and likely to be reversed in 2000 as demand had not jumped to provide
support, although 1999 demand had increased by about one million barrels per day
compared with 1998's stagnation, he said.
The increase would be enough to send some commodity prices, especially metals, higher
which could set nerves twitching about inflationary pressure and send spasms through
bond and equity markets on worries of higher interest rates.Central banks and Federal
Reserve would see rising oil prices as an inflation damper as higher oil costs would trim
economic output, just as low prices had added some 0.5-0.75 pts to gross domestic
product in the United States and about 0.4 pts to Europe's GDP, he said. In crisis-hit Asia,
where dependency on oil imports was quite high, economic growth would feel the effects
into early 2000.

Globally "bond markets will worryneedlessly" about interest rates but he said it would
bring volatility to equity markets. There was still upside for Wall Street, perhaps as much
as 700 points from around the Dow Jones' present 9,800 level, "but the downside is
probably twice as big", Magnus said. Meanwhile, oil prices jumped yesterday on forecast
reductions in gasoline output caused by a fire at a US refinery and fresh confirmation of
OPEC production cuts. World benchmark brent last traded 47 cents higher at $14.4 per
barrel, sharply above the $11.40 that the north sea crude has fetched on average so far
this year.

Prices romped higher on a statement by Chevron that a fire on Thursday at one of its
California refineries would cut 15% of the company's gasoline output in the state