Crude futures edged up to a record high abovey145 U.S. dollars a barrel in New York Thursday, three days ahead of the Group of Eight (G8) summit at which the issues of accelerating inflation and the slowing global economy are expected to grab the spotlight.
Light, sweet crude for August delivery rose 1.72 dollars to hit a new record of 145.29 dollars a barrel on the New York Mercantile Exchange. In early morning electronic trading, oil hit an all-time peak of 145.85 dollars a barrel.
The rally was believed to have been driven by a reported bigger-than-expected drop in U.S. crude stockpiles and lingering concerns about tension in the Middle East.
One year after leaders of the G-8 industrialized nations gathered in Germany, fuel prices have doubled along with soaring food prices, affecting developed countries in particular and heightening the risk of political instability.
Oil prices have increased by more than 50 percent so far this year amid a slump in stock prices worldwide. Since the beginning of this year, all major stock market indices have dropped by double digits.
WHAT IS TO BLAME
The G-8 financial ministers remain divided on where to assign blame for the surge in oil prices. The United States and Britain attribute the price rise to growing global demand while France, Germany and Italy hold speculators accountable.
Experts said that a weak dollar has been partly responsible forthe oil-price hike as investors rushed to buy commodities such as oil to hedge against inflation and take shelter from the battered stock market.
The Organization of Petroleum Exporting Countries (OPEC) President Chakib Khelil said Tuesday that apart from the devaluation of the U.S. dollar and accompanying market inflation, the geopolitical situation including tension between Iran and the West and the impact of bioethanol which reduced diesel production also contributed to the hike.
Khelil warned that if Iran is attacked, oil prices could rise further since the oil-rich country's disrupted production may not be compensated for.
In its annual medium-term oil market report, the International Energy Agency said that oil markets will remain tight in the medium term although soaring prices and slower economic growth are cutting the rise in demand.
IMPACT ON ECONOMY
As world economic growth is largely reliant on cheap energy, the surge in fuel and food prices has overshadowed sustained growth.
According to an International Monetary Fund (IMF) report, the impact was felt more acute for import-dependent poor and middle-income countries confronted with problems such as higher inflation and worsening poverty.
"Some countries are really at a tipping point," IMF Managing Director Dominique Strauss-Kahn has said.
Khelil said that developing countries are facing a dilemma in managing oil prices as too much subsidy will be a burden for governments while no subsidy will be unfair for the general public.
In Southeast Asia, a region burdened with debt and under constant pressure for corporate and financial restructuring, the soaring fuel prices this year have held back the high-speed economic growth trend. A number of countries have already downgraded their growth forecast for 2008.
The ASEAN members were struck by an all time-rising inflation triggered by raising crude and food costs. The surging prices also forced India, Malaysia and Indonesia to cut subsidies and raise state-set prices on gasoline and other fuels.
Pessimistic economists pointed out that the global economic outlook now is more grave than during the Asian financial crisis in 1997-1998, when the effect was largely limited to emerging markets.
DOUBTS ON WAY OUT
The G-8 leaders hope that the July 7-9 summit in Hokkaido, Japan's northern island, will "show some direction" in tackling oil and food prices but stress it is only "one step" in a longer process.
Analysts, however, remain skeptical about how much the G-8 leaders will hammer out beyond urging major petroleum producers to boost output.
During last month's meeting of G-8 finance ministers in Osaka, the United States and Britain pressed oil-producing countries to allow more investment in oil exploration and production.
Saudi Arabian Oil Minister Ali Naimi said Thursday the world's largest oil exporter had no immediate plans to increase crude output because there is no need to do so.
Experts estimated that the upward trend of fuel prices is intact and supply worries will really drive up prices in the coming weeks.