The Guardian

London, June 22:

It was a question of when not if for oil traders yesterday as the price of a barrel of crude threatened to burst through the $60 a barrel barrier for the first time.

The cost of oil has jumped some 11 per cent in a week to a new peak of $59.52 on Monday, as dealers have become concerned that strong global demand for energy could not be met, even with the cooperation of the Opec producers’ cartel.

“The market is so close to $60 it is almost bound to touch it,’’ said analysts at consultancy Refco. “Prices look too high fundamentally, but we have to recognise even a minor supply glitch or hint of one will drive prices higher.’’

Opec’s president said this week that he would begin consultations with other ministers from the oil cartel on Friday to release an additional 500,000 barrels a day of Opec crude if oil prices remain high.

The promise had little effect on the markets, however, with analysts remaining unconvinced that OPEC has the capacity to ratchet up supply. Instead, dealers are concerned about a lack of refining capacity in the United States, where a new facility has not been built for more than 30 years, the kidnapping of workers in Nigeria and the long-term implications of the jailing of Russian oil magnate Mikhail Khodorkovsky for output from his company, Yukos.

Analysts are now openly considering the prospect that high oil prices are here to stay. There are, however, some reasons for optimism as far as the impact on the world economy is concerned, however.

The first is that in real terms, adjusted for inflation, the oil price is lower than it was

when the Iran-Iraq war began in 1980. The second is that de-industrialisation and the expansion of service sectors have made western economies less dependent on petrochemicals than they were during the oil shocks of the 1970s which led to deep global recessions; the amount of oil used per unit of output has fallen by more than half.

Paradoxically, the final reason why higher oil prices may be less of a factor than in the past is that the lion’s share of the price paid at the pump by motorists is accounted for by tax, in Europe at least. It takes a very hefty increase in the cost of crude to have a real bearing on the price paid by drivers.

That is not to say it will not have an impact at all. Ray Holloway, of the UK’s Petrol Retailers’ Association, said the current problem was as much to do with a shortage of refining capacity in the US as the most recent surge in crude prices.

But either way, petrol was about to set new records at the pumps in Britain.