Oil prices rise above $55

As oil prices push above $55 a barrel for the first time, analysts are speculating about the resilience of world stock markets.

    Rising oil prices have put a strain on the US dollar

    Nigel Cobby, director of

    European equities at JP Morgan said the

    stock market was not going

    down very much, "which maybe suggest how much it could go up if we

    had some good news on the oil price".

    "It's not so much how high the oil price goes, it's a question

    of how long it stays at a higher level," he said.

    "The longer it stays at these

    levels then clearly the bigger, negative impact it's going to have

    on the economy."

    JP Morgan downgraded its 2005 global economic growth forecast on Monday

    to 3.1% from 3.8% previously.

    "In our opinion it [the oil price] is probably the single

    biggest factor that is stopping this market going up," he added.

    European stock markets eased back slightly in early trading on

    Monday.

    The London FTSE 100 index dropped 0.19% to 4613.70

    points, the Frankfurt DAX 30 lost 0.48% to 3903.21 points

    and the Paris CAC 40 fell 0.40% to 3656.21.

    1970's oil shock

    In Tokyo, the Nikkei-225 share index closed 0.16% lower on Monday

    , extending losses for a seventh consecutive session.

    US share prices skidded lower last week as surging oil prices

    and uncertainty about the presidential election kept the mood

    cautious.

    The Dow Jones Industrial Average dropped 1.21% for the

    week ending

    Friday at 9933.38, while the Standard and Poor's 500

    broad-market index retreated 1.24% to 1108.20.

    Greenspan says oil prices are not
    as damaging as in the 1970s

    But prices perked up on Friday after Federal Reserve chairman

    Alan Greenspan said soaring oil prices should inflict less damage on

    US economic growth and inflation than during the 1970's oil shock.

    However, the harm could intensify if oil prices moved

    "materially higher", he warned.

    Record high prices were set to have only a limited impact on

    economic recovery in the 12-country Eurozone, a top official of the

    European Central Bank said in a newspaper interview.

    "Naturally, uncertainty has increased as a result of oil prices

    and of a few mixed economic signals," ECB executive board member

    Jose Manuel Gonzales-Paramo told the business daily Handelsblatt.

    "But I don't believe so far that we have to alter our forecasts.

    Recovery is continuing," Gonzales-Paramo said.

    Strain on dollar

    World oil prices have nearly trebled from about $20 a

    barrel in New York at the start of 2002, but adjusted for inflation

    they remain below levels of $80-plus seen in the wake of the

    1979 Iranian revolution.

    Economists said rising energy costs were having only a muted

    impact on global inflation, although it has fuelled the US trade

    deficit, which boomed to $54 billion in August, the second

    biggest in history.

    And high gasoline prices could test American consumer

    confidence, they added.

    "It's not so much how high the oil price goes, it's a question

    of how long it stays at a higher level"



    Nigel Cobby,
    JP Morgan

    "For most countries, we suspect that higher oil prices have had

    an impact not so much through inflation but via deteriorating terms

    of trade," HSBC economists wrote in a research note.

    The US dollar has started to show the strain from rising oil

    prices, a swelling trade deficit and fragile consumer confidence,

    tumbling to an eight-month low against the euro, which bought $1.2480 on

     Monday.

    "The dollar has been undermined by cyclical factors with

    evidence that the US economy is entering its second oil-induced

    'soft spot' of the year," said Derek Halpenny, economist at the Bank

    of Tokyo-Mitsubishi.

    Rising oil prices have given a boost to gold prices, which have

    reached six-month highs above $420 recently.

    An ounce of gold

    fetched $418.40 at the morning fixing on the London Bullion

    Market on Monday.

    SOURCE: AFP


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