Crude oil soared to $46 a barrel (U.S.) for the first time ever Friday as disruptions in supply from Iraq and the Gulf of Mexico raised concerns over a potential energy shortfall at a time of rising demand.
Investors also fretted that the global oil market could soon see supply cuts from Russia's OAO Yukos Oil Co. as well as in Venezuela, where a referendum on President Hugo Chavez to be held Sunday could result in a decision that might crimp exports from the oil-producing South American country.
Oil's record-setting climb continued to stoke fears that soaring energy costs could derail global economic growth. A report from Goldman Sachs warns that while a sustained gain of just 10 per cent in the price of oil can wipe 0.3 per cent from global gross domestic product, among the richest nations, it is Japan and not the U.S. that has the most to fear from higher oil prices.
Crude oil futures for September delivery traded on the New York Mercantile Exchange climbed 50 cents or 1.1 per cent to $46 (U.S.) a barrel Friday after closing above $45 for the first time ever Thursday.
Traders pinned recent gains on a drop in supply from Iraq as U.S. forces battled insurgents in the southern city of Najaf. While Iraqi oil officials say that the uprising in Najaf hasn't affected the flow of oil, actual output sits at about half its normal level because of loading constraints at terminals in the Persian Gulf.
The recent rise in prices spells bad news for the global economy, since higher energy costs mean fewer dollars in consumers' pockets. And according to Goldman's London-based economics group, $45-per-barrel would knock 0.7 per cent from the total economic output of the 30 member counties of the Organization for Economic Co-operation and Development (OECD). Oil at $50 a barrel would slash the pace of growth by 0.9 per cent.
"These losses to net income are reasonably significant and support our view of slower economic growth ahead," said Binit Patel, senior economist at Goldman Sachs.
Breaking it down by individual countries, Mr. Patel said that if crude were to remain at $50, Japan's resulting trade loss would be 1.3 per cent of GDP. That compares to 1.2 per cent for Europe and 1.1 per cent for the United States.
Soaring crude prices also threaten to accelerate the pace of inflation. Consumer price inflation in the three regions would jump by 1.5 per cent if crude hit $50, the report found.
"Japan is the most vulnerable of the G3 countries, closely followed by Euroland, with the U.S. producing enough domestic oil to make it a little less vulnerable to terms of trade losses," Mr. Patel wrote.
Japan and the U.S. are among the world's biggest crude consumers. Japan produced roughly 5,300 barrels of crude a day in 2002, according to the latest data from the Energy Information Administration, the statistical arm of the U.S. Energy Department. The country was consuming 6.06 million barrels of crude a day by the first quarter of 2004.
The U.S. produced 8.8 million barrels a day through 2003 and consumed and average of 20.36 million barrels a day in the first quarter.
Canada, meanwhile, pumped out 2.4 million barrels a day over the first five months of this year, on average, and consumed 2.23 million barrels a day during that same period.
The Goldman report noted that Canada and the United Kingdom are the only G7 countries that are net exporters of oil "and therefore experience gains in net income when oil prices rise."
If crude remains at $50 a barrel and factoring in the rise in prices from 2002 to 2004, Canada's net income gains will be 1 per cent of GDP while the U.K.'s economy would benefit by a slimmer 0.5 per cent.
Goldman's current forecast calls for oil prices to cool to $38 a barrel in the second half of 2004 and dip down to $36 a barrel next year. However, "with inventories at critically low levels and production near capacity limits, the risks seem to be skewed significantly to the upside," Mr. Patel said.
Crude prices have surged from year-earlier levels. In August of 2003, oil futures were trading at $30.78 a barrel in New York while in August of 2002, crude was at $28.42.
