15-03-04 The world economic revival, beset by renewed concerns of international terror, faces a new threat of rising oil prices. Five years ago the oil price stood at a little over $ 10 a barrel and many observers were predicting that the market was poised to weaken further.
With demand likely to be trimmed by a slowdown in world economic growth and supply boosted as Russia sought to raise its share of the global crude market some analysts forecast a price of $ 5 per barrel.

While the global economic downturn and Russian production increases occurred as foreseen, analysts failed to predict the Middle East unrest which sent US crude near $ 40 a barrel a year ago. They were unaware of the premium which continuing terror fears, stoked most lately by the bombs in Madrid, would provide to oil prices.
After a series of cool Northern Hemisphere winters it had seemed inconceivable that US gasoline prices would soar as oil supplies were siphoned into strategic reserves. It also seemed unlikely that OPEC, the producers' cartel, would be in any position to talk up the market. Weak oil prices appeared indicative of the cartel's powerlessness and seemed to herald the organisation's demise. Member states had reacted to the market slide not by trimming production to support oil prices, as efficient cartel practice would dictate, but raising output in an attempt to replace through volume of sales what they were losing in value.

The hint of a rise in the price range of $ 22-$ 28 a barrel targeted by OPEC prompted consternation on the markets. The proposal, made by Nigeria, found quick support from Venezuela and will find broader backing if an output cut of 1 mm bpd scheduled for April 1 fails to bring the rewards OPEC members have hoped for.
A cartel which appeared moribund when prices were low has been restored by a firm market to rude and assertive health. Now it is the welfare of global economic revival which is being questioned. Higher oil prices threaten to trim the rise in corporate profitability on which the revival in stock prices worldwide has been built. They may also boost inflation, prompting higher interest rates which would in turn choke growth in consumer spending.

Rate rises represent a particular danger to Britain, which has such high levels of personal debt. The country can take some comfort in the strong pound which has reduced the impact of the rise in oil prices, which are traded in US dollars. The US, however, has been exposed to the full impact of the rise in oil prices and any slowdown in the world's largest economy would be felt keenly in the UK.
Furthermore, currency analysts are betting on a recovery in the dollar, raising the prospect of the British economy sustaining a double whammy. A significant impact appears unlikely. Britons, nonetheless, should brace for higher fuel costs. With electricity prices also rising, the age of cheap power appears to be drawing to a close.