Friday - November 02, 2007

A Question for the Economic Gurus Out There: Oil Prices and the Third World

Here is a question to which I'd like an answer, or at least some opinions. High fuel prices in the U.S. have had an impact, more than likely at the individual level, based on ability to pay. But in total, a $12 trillion dollar economy has some room to absorb the rising price of gasoline.

So then, how do third world economies, even though they are growing and expanding rapidly, deal with fuel prices that have doubled over time? Won't increasing oil prices put the brakes on the Indian and Chinese economies before the U.S. economy? If I'm on the right track, tell me why. If I'm way off base, let me know.

Oil prices rose to nearly $94 a barrel on Friday, recovering from overnight falls due to funds selling on weakness in global equity markets.

Traders said tight supply worries continue to support prices, citing comments by the administrator of the U.S. Energy Information Administration (EIA) about fears of a supply shortage next year, as well as continued strong demand in Asia.

U.S. oil for the December contract gained 41 cents to $93.90 a barrel by 0246 GMT, having fallen by $1.04 a barrel after striking an all-time high of $96.24 a barrel.

Brent crude was up 71 cents to $90.43 a barrel but down from a record of $91.71.

Guy Caruso, administrator of the EIA, has said that if OPEC does not produce more oil, markets would be short of barrels in the first quarter 2008.

Derivatives traders said Asian demand is expected to continue unabated.

China's oil giants Sinopec Corp (0386.HK: Quote, Profile, Research) and PetroChina (0857.HK: Quote, Profile, Research) are looking to more than double diesel imports this month to the highest in three years, helped by a surprising pump price hike on Thursday.

"Though they may feel the pain from high oil prices, a big chunk of demand growth is expected from China, India and the Middle East in 2008," said Tony Nunan, risk manager for Mitsubishi Corp in Tokyo. Read more....

Author: The Machiavellian
Technorati Tags: Oil prices
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