Posted on 05/22/2004 1:13:14 PM PDT by decimon
NEW YORK (Reuters) - Finance officials from the Group of Seven economic powers, meeting in New York on Saturday and on Sunday, are set to call on oil-producing nations to increase output in an effort to curb lofty energy prices.
Although members of the Organization of Petroleum Exporting Countries at an Amsterdam gathering on Saturday deferred any decision on upping production for another two weeks, Saudi Arabia and others signaled they would back output hikes.
A statement following the OPEC (news - web sites) meeting expressed "deep concern" about oil prices and said the cartel wanted to cut fuel costs to support the world economy.
But it made no recommendation on a Saudi proposal for a two-million barrel a day output rise.
Anxious to guard the fastest global economic growth in at least four years, G7 ministers are widely expected to call on OPEC -- which meets again formally in Beirut on June 3 -- to honor commitments to stabilize oil below $30 per barrel.
Crude prices have soared to record highs above $40 per barrel, although they dipped back below that on Friday after Saudi Arabia said it would bump up its oil production and urged other OPEC members to act.
U.S. Treasury Secretary John Snow on Friday welcomed Saudi Arabia's plan and said he would back a G7 call for an OPEC-wide pledge. Britain's Gordon Brown, Germany's Hans Eichel and France's Nicolas Sarkozy had earlier penned a joint statement to that effect too.
Canada's Ralph Goodale, who opted out of the G7 meeting because of election commitments at home, was the latest to give his support to a G7 finance chiefs' statement on oil.
Goodale called Snow and Brown and the three agreed the G7 should be "pressing for appropriate increases in global (oil) production to help moderate the global economy," a spokesman said on Saturday.
Japan has been less specific but echoed the concern. Finance Minister Sadakazu Tanigaki said on Friday: "We have to discuss the issue so that (rising oil prices) won't hamper the global economic recovery."
Italy has been tight-lipped so far on the subject.
WALDORF AGREEMENT?
Finance ministers from five of the G7 -- the United States, Britain, France, Italy, and Japan -- are meeting on Saturday night and Sunday at the Waldorf-Astoria, a landmark art deco hotel on New York's fabled Park Avenue.
The ministers will discuss the outlook for global growth and prepare the economic agenda for a June 8-10 political leaders' summit in Sea Island, Ga.
Germany's Eichel and Canada's Goodale will not attend the weekend gathering but have sent high-level replacements. Russia will also send a delegation as part of preparations for the G8 summit, where it has a seat at the top table.
The officials will hold a short meeting on Saturday evening at the hotel and then dine at New York City Mayor Michael Bloomberg's private residence, a luxury townhouse on the East Side of Manhattan.
The G7 finance chiefs and central bankers discussed rising oil prices at their Washington meeting last month, but while their joint communique nodded to concern about energy costs, it did not include any language on OPEC production.
Some OPEC members, G7 officials and many private economists argue that recent oil prices are a result of refining capacity constraints, market speculation and roaring economic growth rather than collars on crude output.
While higher output might help to stabilize the situation, they argue, it would not necessarily lower prices.
"It's hard to imagine the possibility of more (production) increases," one G7 source said. "What good would statements do in view of the fact that more can't be produced?"
Some market analysts also reckon calls for higher output may be a red herring.
"G7 is even more impotent than OPEC is at this stage in an attempt to keep a lid on the market," said Nauman Barakat, senior vice president at Refco in New York.
"OPEC is trying to figure out ... the reason for this (oil price). Is it about production or about other factors beyond its control?" he added. "The longer-term major factor is the significant increase in demand. That was a major catalyst. And the very unstable geopolitical environment."
The overall impact of higher energy costs on the world economy is expected to be limited. Rules of thumb suggest it will shave less than half a percentage point off global gross domestic product, now expanding at about 4.5 percent a year.
But G7 concern appears twofold.
The impact on demand and consumption in the slow-growing members of the club -- the euro zone in particular -- could exaggerate an already uneven pace of expansion and worrying current account imbalances.
Conversely, the impact of high oil on the fast-growing economies -- like the United States and Britain -- could exacerbate inflation pressures, forcing up interest rates.
OPEC has already decided today to defer any discussion of raising production quotas until June..
June is nearly here.
My problem with this is that worldwide demand is rising and that will lead eventually to an energy crunch. Forcing the price down now just gives a disincentive to buying more energy efficient houses, cars...whatever.
Well, "June" in this sense means OPEC's next meeting which is a month from now.
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