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Analysts: Soaring Oil Prices Could Slow Global Economic Growth


Although global oil prices have fallen back from the soaring levels of earlier this week, they remain far higher than they were just one year ago. An increasing number of analysts are predicting prices will stay high, a worrying development that could slow global economic growth.

Less than a month ago the International Monetary Fund said the world economy was in its best condition in over 20 years. IMF forecasters said the world economy was likely to continue to expand at a four to five percent rate well into next year.

But the IMF assumed that oil prices would retreat slightly from the $45 level that prevailed in late September. Since then, instead of falling back, prices have risen another 20 percent to near $55 a barrel.

Oil analyst Philip Verleger, who spoke Thursday at Washington's Institute for International Economics, says prices are likely to stay high because of soaring demand, particularly from India and China.

"Today the story is India and China," he said. "Their consumption since 1990 has been growing at a seven percent rate and total world consumption has been growing at a one point three percent rate. And if you take out China and India, world growth is only eight-tenths of one percent."

Mr. Verleger says the increased demand from China and India has boosted world demand for oil by four million barrels a day.

Another analyst, Brian Hicks in San Antonio, Texas, agrees that prices are likely to remain high. He tells Bloomberg news that it is unlikely that the United States will comply with OPEC's call that Washington should help depress prices by releasing oil from its strategic petroleum reserve.

"No, I don't think that is at all likely," said Mr. Hicks. "I think if President Bush were to release oil from the SP [strategic petroleum] reserves, he probably would have done so already."

Some economists say the near doubling of oil prices this year will slow economic growth but not by enough to trigger a recession. Other economists say if prices remain in the $50 per barrel range, the danger of recession is very real.
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