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High Oil Prices and the World Economy

I’m Shep O'Neal with IN THE NEWS in VOA Special English.

This week, crude oil traded briefly at a record sixty-eight dollars a barrel on the New York Mercantile Exchange. Prices are up about fifty percent from last year. With inflation considered, prices are still below what they were in the early nineteen eighties. Then, crude oil sold for well above eighty dollars a barrel.

But, in dollar terms, this is the most that the world's largest economy has ever had to pay. In some areas, prices at fuel stations are almost as high as Americans have ever paid, even with inflation.

The Energy Department said this week that crude oil prices remain very high even though supplies in the United States are growing. Oil supplies generally decrease at this time of year because of seasonal demand. Officials say the recent buildup should keep prices from being as high this winter as they might be without it.

On Friday, central bank chairman Alan Greenspan had praise for the way the economy has dealt with high energy costs. So far, he says, it has handled the sharp rise in prices for oil and natural gas over the past two years "reasonably well."

But economists at the International Monetary Fund in Washington have voiced concerns about the world economy. On Thursday, the managing director warned about the risk to economic growth in Asia. Rodrigo de Rato urged Asian central banks to use monetary policies to fight inflationary pressures caused by high oil prices. He directed his comments especially to Indonesia and the Philippines. The high cost of oil has slowed Indonesia's economic growth.

Many issues can affect oil prices. For example, on Friday, Nigerian officials ordered increases in the price of fuel. There were fears of general strikes. Nigeria is the world's eighth larger exporter of oil.

Terrorism is another concern for oil traders. But even the weather can sabotage the industry. This week, there were concerns about the possible risk to oil production in the Gulf of Mexico from the ocean storm Katrina.

However, industry experts say the biggest concern is the growing world demand for oil. The United States and China are the top two users. A report this week said China imported fifteen percent more crude in July than a year ago. Crude oil becomes fuel and other products.

There are questions about the ability of oil-producing nations to meet growing demand. Some experts believe that Saudi Arabia's oil fields may have reached peak production. This is when more than half of the recoverable crude has already been pumped out. Saudi Arabia denies that. Earlier this year, the International Monetary Fund called for more openness to confirm the supplies of the world's top oil producer.

Currently Saudi Arabia produces more than ten million barrels of crude a day. It says it expects to produce more than twelve million barrels daily by two thousand nine.

IN THE NEWS, in VOA Special English, was written by Jill Moss. Our reports are online at I'm Shep O'Neal.