Larry Elliott (Guardian Utd): The world economy sinks or swims in oil

[Jack Rabbit]

From the Guardian Unlimited (UK)
Dated Monday August 9

The world economy sinks or swims in the black stuff
By Larry Elliott

August is a strange month. Supposedly, the financial markets are in a state of torpor, but in recent years that has not always been the case. Weird stuff happens, be it Saddam's invasion of Kuwait, the attempted coup against Gorbachev or the Russian debt default. This year the story is oil.
Over the past few weeks, the price of oil on the futures exchanges has crept up and up and on Friday night it was nudging $45 a barrel. The expectation is that it may go higher.
"Fifty, sixty dollars a barrel is thinkable for the first time since 1979 ... But so much has changed between then and now that prices might have to go even higher before demand growth slows down," said Deborah White, senior economist at SG Commodities in Paris.
There is no single explanation for why oil is currently so expensive. Strong global demand is certainly an important factor, with China's explosive growth rates putting pressure on the capacity of oil producers. There is enough crude to go round, but only just. The lack of wriggle room means any threatened disruption to the flow of oil has a rapid impact on prices, so it's not difficult to see why the shenanigans at Yukos have made oil dealers jittery. The Russian company accounts for around 1.6m barrels per day - 2% of global daily output - which is similar to the increase in production that Opec promised at the start of June.

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