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Oil price becoming a rising trend

By: Colin Brinsden
08 April, 2011

Motorists might have to get used to sudden price spikes at the bowser.

Unleaded fuel prices are around their highest in almost two-and-a-half years, and if it wasn't for the strength of the Australian dollar restraining the price of fuel imports, they would be a lot higher.

Political tensions and conflict in the Middle East and north Africa have been the main driving force in the latest rise in international oil prices to above $100 a barrel.

But according to the International Monetary Fund (IMF), the trend in rising oil prices suggests the global market has entered a period of increased scarcity.

In an oil price analysis, the global financial institution says there has been an upward shift in oil consumption, due to the fast-growing emerging market economies, while there has been a downshift in oil supply growth.

"The latter partly reflects the drag from a growing share of maturing oil fields, which have raised both the production and the opportunity cost of bringing an additional barrel to the market," the report, released in Washington on Thursday, says.

IMF modelling points to gradual and moderate increases in oil scarcity might only have a minor constraint on global economic growth in the medium and long term.

An unexpected sizeable downshift in oil supply trend growth of one per cent would slow annual global growth by less than 0.25 per cent in the mid to long term.

"However, such benign effects on global growth should not be taken for granted since scarcity or its growth effects could be more significant," it says.

"There are downside risks to supply, including from geopolitical risks, that imply that oil scarcity could be more severe and may materialise in large and abrupt changes."

This would mean the impact on growth would be larger.

The IMF said it was uncertain whether the world economy could adjust as smoothly to increased scarcity as it was assuming, which also meant the affects on growth would be greater.

Given the potential for unexpected large increases in the scarcity of oil, the IMF says governments should review whether their current policy frameworks facilitate these adjustments.

"Consideration should be given to policies aimed at lowering the risk of oil scarcity, including through the development of sustainable alternative sources of energy," it says.

Source: AAP

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