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Global economy can survive oil price surge, for now: IMF

The world economy can withstand the surge in oil prices sparked by unrest in the Middle East and North Africa so long as the increase proves short-lived, said the International Monetary Fund’s No. 2 official, echoing Deutsche Bank AG and Bank of America Merrill Lynch.

Futures for April delivery climbed to within $2 of $100 a barrel in New York Tuesday, and London-traded Brent rose to $108.57, close to the highest since September 2008, as escalating violence in Libya stoked concern supplies from the region will be disrupted. Oil in New York has gained almost 6 percent since Jan. 24, the day before the first anti-government protests erupted in Egypt. 
John Lipsky, first deputy managing director of the International Monetary Fund. (Bloomberg)
John Lipsky, first deputy managing director of the International Monetary Fund. (Bloomberg)

“It’s unlikely it would make a substantial change in the global economic outlook,” John Lipsky, the IMF’s first deputy managing director, told Bloomberg Television’s “Inside Track” Tuesday. The Washington-based lender assumed oil would average about $95 a barrel this year when it forecast global economic growth of 4.4 percent for 2011, he said.

Political unrest that has swept from Tunisia to Yemen, Algeria, Bahrain and Iran in the past four weeks is fanning oil’s advance at a time when the global economy is emerging from the deepest recession in more than 50 years. U.S. consumer confidence rose to its highest level in three years this month, according to a report Tuesday. Data showed Monday that German business confidence increased to a record in February.

While an extended $10 advance in oil cuts 0.5 percentage point off U.S. growth over two years, the world’s biggest economy will expand 3.8 percent this year, almost a percentage point more than in 2010, according to Deutsche Bank.

“Economies are vulnerable to the oil price, but so far it’s looking like business and consumer confidence are relatively strong,” said Michael Lewis, London-based head of commodities research at Deutsche Bank, which predicts world growth will surpass 4 percent for the second successive year.

At least 250 people died in the Libyan capital Tripoli overnight as protests against Muammar Qaddafi’s leadership spread, al-Jazeera reported. Libya accounted for 4.6 percent of the 29.4 million barrels of oil pumped daily by the Organization of Petroleum Exporting Countries in January, making it OPEC’s ninth-biggest producer, according to data compiled by Bloomberg.

Brent may trade between $105 and $110 a barrel in coming weeks if the unrest continues, and reach a record should the violence spread to larger Middle East producers, such as Saudi Arabia, Goldman Sachs Group Inc. said in a report Tuesday. Global expansion would be hurt if there were a sustained surge in oil to about $120 a barrel, according to Deutsche Bank and BofA Merrill Lynch.

Gasoline and heating oil rose to the highest levels in more than 28 months Tuesday, rising more than 5 percent before paring gains. Gasoline for March delivery added 7.36 cents, or 2.9 percent, to $2.6249 a gallon at 11:25 a.m. on the New York Mercantile Exchange. Prices touched $2.681, the highest level since Sept. 25, 2008. Heating oil for March delivery rose 9.87 cents, or 3.6 percent, to $2.8116 a gallon after touching $2.8589, the highest level since Oct. 2, 2008.

The risk of costlier crude is that it may deprive consumers of purchasing power, hurt corporate profits and force central banks to raise borrowing costs to curb price increases. Inflation in China, the world’s biggest energy consumer and fastest growing major economy, was 4.9 percent in January, above the government’s target. 

(Bloomberg)
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