Rate hike fears as oil prices hit new high

INTERNATIONAL oil prices continued to soar yesterday rising to new highs of $64 per barrel and threatening higher interest rates.

Dearer oil will push up inflation figures experts warned and the end result could be a hike in rates from the ECB.

Every 2 cents increase in the price of petrol adds 0.05% to inflation and the impact overall this year will be significant.

When domestic fuel costs overall are taken into account they will account for 0.3% of this year’s expected domestic inflation figure of 2%, said Alan McQuaid, chief economist, Bloxham Stockbrokers.

This will impact across Europe as well as Ireland and the end result could be an unexpected hike in rates this year from the ECB, warned Mr McQuaid.

Until recently it was expected the ECB would leave rates unchanged until the second half of 2006 in order to prop up the depressed eurozone area.

In the long term rising inflation will also hit economic growth. Every $10 hike in the cost per barrel of oil knocks about 0.5% from global growth economists estimate.

Meanwhile, the Green Party hit out at the Government’s failure to develop a coherent energy policy following the latest oil price shocks.

Prices are ahead by 48% in the last year without any significant Government response, said Eamon Ryan, Green Party spokesman on Energy.

He called on Minister Noel Dempsey to detail what type of analysis, if any, the Government has conducted into peak oil production.

Many experts believe supply and demand is the key issue facing the global economy and not market speculators exploiting nervousness about supplies.

Peak Oil experts argue the core issue the world faces is the fact that demand is starting to run ahead of available oil supplies.

Colin Campbell, a former geologist with leading international oil companies, and a founder of the Peak Oil lobby, says the globe could be facing into a 20-year recession as the world adapts to a decline in the black gold.

In his view oil production is nearing its peak and this could be achieved in 2008 if not earlier.

That means known reserves of oil will start to decline for the first time in the history of modern economics.

Aidan Heavey, chief executive, Tullow Oil, an Irish oil producing company with global interests, warned recently we were looking at oil prices of $75 per barrel in the near future which would not be reversed.

Some projections put the price at significantly higher in the medium term.

Mr Ryan said the top 45 oil-producing nations accounted for 99% of global oil production in 2003.

Of those 24 have now passed their peak.

Out of the 11 OPEC countries 6 peaked in the 1970s and one other, Saudi Arabia, peaked in 1980, he said.