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Price of crude oil is just an 'irritant'.

Byline: Nevill Boyd Maunsell Economics Editor

Oil prices will become a serious issue for Britain if they reach $80 or $90 a barrel, dramatically higher than the record just short of $50 they touched briefly at the end of last week. This view came yesterday from the Bank of England's chief economist Charlie Bean, who described the present price of crude as more of a 'irritant' than a threat.

'We would be reasonably relaxed at current levels,' he added. 'In real terms the price of oil is about half what it was in the peaks in 1974/75 and the late '70s.'

He also suggested that the 'normal' rate of official interest rates may be 'a bit higher than we are', confirming the City view the Bank of England may raise rates once more from the present 4.75 per cent, but probably no further.

Yesterday, oil prices stopped falling after their three-day retreat from record prices hit at the end of last week.

After the US government said that crude stocks had shrunk to a five-month low last week as refineries ran hard to meet demand, US light crude slipped four cents to $45.18 a barrel, while in London Brent went three cents higher to $42.35.Both prices are down around $4 from last week's records though still $8 higher than at the end of June.

The US Energy Information Administration said commercial crude oil stocks fell last week by 1.7 million barrels to 291.3 million, their lowest level since March.

Crude stocks fell as refineries worked at 96 per cent of capacity, eating up feedstocks at a rate of 16.05 million barrels per day. US demand for diesel fuel this summer has been unusually high, due in part to surging freight activity and manufacturing, oil dealers say. Distillate fuel demand, including diesel, is running more than seven per cent above last year.

Petrol stocks were unchanged at 205.7 million barrels, near the upper end of their five-year average.

Analysts had expected US gasoline supplies to decline due to summer holiday driving, but in the event it has been just 0.7 per cent higher than last year over the past four weeks.

Crude prices fell earlier this week after Iraq restored full crude exports of two million barrels a day from its southern Basra fields and restarted deliveries at 450,000 bpd, half capacity, from its northern Kirkuk fields for the first time since May.

Worries that Russian taxmen may cut off oil exports by YUKOS have also eased after President Putin gave President Bush an assurance on Russian supplies last week.

Russia has allocated YUKOS its usual crude export levels through major ports in September, including 520,000 tonnes through the Baltic port of Primorsk, where total volumes should hit a new record.

So far there is little evidence that fuel costs are undercutting economic growth, either in big industrialised powers or in China and India.

The average Brent price has risen 22 per cent so far this year to $34.70 a barrel from $28.48 in 2003. Brent is up 260 per cent from an average of $13.34 in 1998, when prices crashed. That compares to a threefold price jump over a few months in the winter of 1973-1974, during the Arab oil embargo after the Yom Kippur war.

European Central Bank President Jean-Claude Trichet said yesterday that dearer oil has not changed the ECB's outlook for eurozone growth.

'All things considered, petrol prices and all the rest, I don't think there is a need to revise downwards our forecasts for growth for the euro zone,' he said.

The situation was not comparable to the energy crises of the 1970s and 1980s, he added, because oil price increases are not on the same scale and economies now are better protected against fuel costs.
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Aug 26, 2004
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