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Some good oil on prices

THERE is an upside impact of the oil price!

Researchers at Credit Suisse First Boston believe the escalating oil price will stabilise the US economy.

They see prices as an effective substitute for a policy adjustment that the economy has been crying out for.

This view is one being put forward at a time when the G7 nations have indicated that their finance ministers, who are meeting next week, will put a great deal of pressure on the OPEC nations to raise their production to reduce the price of oil.

The price has gone to a new high of around $35.90 and is now seriously looking like it will breach the $40 barrier.

But didn’t OPEC agree to raise its production by 800,000 barrels a day recently? Yes and no.

It agreed to raise production by 800,000 barrels but was already 700,000 barrels ahead at that stage.

So effectively, the increase that will be implemented will only be around 100,000 barrels a day. That was hardly what the market considered reasonable or acceptable. Hence, the price continues to increase at an alarming rate.

So despite the mooted increase the market does not see this as sufficient.

The slowing of the US economy is not unexpected because the oil price impact is felt on all parts of the economy in higher transport costs and higher costs of production.

The sooner that G7 is able to convince OPEC to increase production further the sooner we will be able to have an immediate impact on the rates of growth that will be experienced in the various economies.

Through it all it must be remembered that the governments of various nations also impose an extraordinary amount of tax on the oil prices.

They are as much to blame for the prices as are OPEC.

The protests in Europe are just the start of a major ground swell of resentment.

There is a distinct possibility that governments could be unseated as a result of this.

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