Record oil prices have forced the International Monetary Fund to scrap its forecasts for global economic growth next year, just a week after it published them.
As crude prices struck fresh all-time highs for a third day yesterday, the fund said it was worried about the medium-term outlook. The cost of oil surged on both sides of the Atlantic, breaching $53 a barrel in New York and jumping more than a dollar to a record $49.07 a barrel in London on news that a strike in Nigeria had put exports on hold.
David Robinson, the deputy director of the IMF's research department, said the relentless rise of oil prices meant last week's forecast of 4.3 per cent growth in 2005 was already out of date. He said the $5 a barrel increase since the report was printed meant the fund would probably pencil in growth of about 4 per cent if it were to reissue its projections. The IMF has a "ready reckoner" that every $5 rise in oil prices knocks 0.3 per cent off growth.
Speaking to bankers in Singapore, Mr Robinson said: "There are clearly downside risks to global growth because of oil prices looking forward. I do worry about the medium-term outlook, about the sustained vulnerability to oil prices."
Oil prices have doubled in the past year as a surge in demand has coincided with worries over oil supplies because of tension in the Middle East, political problems in Russia and Nigeria, the hurricanes in the Caribbean and a shortage of refining capacity. According to the International Energy Agency, the amount of spare production capacity was down to about 1 million barrels per day from a historical average of 4 million.
Analysts believe there is little hope of an immediate increase in spare capacity as the northern hemisphere, which includes most of the biggest consumers of oil, moves into winter and colder temperatures.
They warn the oil market will depend on oil-exporting nations - especially the cartel Opec and Russia - producing at close to full capacity, increasing the risk of price spikes if production is disrupted unexpectedly.
Yesterday's spike was triggered by Shell when it said Nigerian oil unions had begun an unexpected two-day strike at its facilities to protest against a reorganisation plan, but the company said output had not been affected.
Some analysts see prices breaching the $60 barrier, ever closer to the $80 a barrel level that oil hit in today's money in the recessionary price spike of the 1970s. "A geopolitical disruption, stronger demand for diesel or a cold winter will send us to $60," one said.
Central bankers in the US, the world's largest consumer, moved to play down fears that oil prices could derail its economic recovery. Sandra Pianalto, a voting member of the Federal Reserve's rate committee, said energy costs could be inflationary but doubted they would "derail economic expansion". Thomas Hoenig, a fellow Fed member, said: "As long as oil prices don't get significantly higher than they are now, about $50 a barrel, their likely effects should remain relatively modest."
Economists said high oil prices would remove the need for higher interest rates. Jeff Rubin, the chief economist of CIBC World Markets, said: "Instead of losing momentum along an arduous march to higher interest rates, the North American economy will soon be feeling the brake of soaring energy prices."