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TOKYO: Finance ministers from the Group of Eight rich
nations will discuss this weekend ways to limit the economic damage
of soaring oil prices that have eclipsed the credit crisis as their
biggest worry.
But experts said the G8 powers
have few obvious options to cool the commodities boom in the near
future, with any calls for the OPEC producer cartel to open up the
taps likely to fall on deaf ears.
Soaring crude oil prices are
causing growing concern in the major economies and raising the
prospect of credit tightening by central banks to contain inflation,
even as global economic growth slows, led by the US.
While the fallout from the US
credit crunch continues, the sense of alarm on world markets seen
after the turmoil erupted last year appears to have eased, helped by
central bank action to shore up the financial system.
Now soaring oil prices appear to
have replaced the subprime loan crisis as the main worry for global
policymakers, said Tim Condon, head of research at ING Financial
Markets in Singapore.
“The subprime worries linger
but the authorities, at least in the US, seem to be suggesting they
pose less of a risk than they did, whereas the oil price shock is
really pressing both on the growth and inflation fronts,” he said.
Top finance officials from
Britain, Canada, France, Germany, Italy, Japan, Russia and the
United States will gather in the western Japanese city of Osaka for
a two-day meeting starting on Friday.
Energy officials from G8 nations
plus China, India and South Korea on Sunday called on major oil
producers to increase investment to keep markets well supplied in
response to rising world demand.
But Japanese Finance Minister
Fukushiro Nukaga acknowledged last week that the G8 may not be able
to come up with measures to reduce oil prices “overnight.”
Oil producers insist there is no
shortage of oil on global markets, blaming speculators and the weak
US dollar. But analysts say they could still do more to take some of
the speculative froth out of the market.
“I think OPEC’s got
justification to suggest that supply is really ample. It’s
certainly not tight. But I think what they choose to ignore is that
they do have a big sway over sentiment,” said Mark Pervan, head of
commodities research at Australia and New Zealand Banking Group in
Melbourne.
If speculators thought OPEC would
react to high prices by increasing supply, it would “take a fair
bit of steam out of the market,” he said.
Soaring food prices and joint
efforts to tackle climate change are also expected to be high on the
agenda at the G8 meeting.
Food prices have doubled in three
years, according to the World Bank, hurting developing nations in
particular and sparking unrest in some countries and food export
restrictions in others.
Although central bank chiefs will
be absent from this weekend’s G8 meeting, markets will be looking
for any signs of increased concern about the weak dollar,
particularly in Washington.
Federal Reserve chairman Ben
Bernanke has warned that a weaker dollar is adding to US inflation
pressures.
But analysts said European
officials may be reluctant to agree to saying anything in the joint
statement that would drive down the euro as that would stoke
inflation in the eurozone, leading to higher interest rates.
“We doubt that the Europeans
would be so comfortable to watch the euro come off dramatically
because of the extra inflation headache that could induce,” said
David Mann, currency strategist at Standard Chartered in Hong Kong.
If the G8 can help put a floor
under the dollar, however, that could help to keep a lid on oil
prices, analysts said.
There is a high inverse
correlation at the moment between the dollar and oil prices, which
are denominated in the US currency, said ANZ’s Pervan.
“Where they can they’ll try
to talk the dollar up because they know it should have an impact on
the oil price in the short term.”
--AFP
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