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Tuesday, August 24, 1999 Published at 10:26 GMT 11:26 UK

Business: The Economy

Oil price crisis warning

More petrol price rises will hit drivers and industry

Consumers, car drivers and industry are being warned that the oil market is heading for a price explosion.

Dr Drollas: oil producers don't benefit in the long term
Petrol prices at the pumps have already gone up twice in recent weeks.

Oil prices are now about $21 a barrel, compared with a 30-year low of about $9 last year. Drastic production cuts were introduced in March to push the price back up.

But now the Centre for Global Energy Sudies says there will be a price crisis unless oil-producing countries reverse their policy of cuts in output.

High oil prices have knock-on effects for most of society. They mean dearer petrol for drivers, higher transportation costs for manufacturers, higher production costs, higher electricity costs and a greater burden on industry generally.

It all leads to one thing: a rise in inflation, which inevitably brings the threat of interest rate rises.

[ image: The amount of oil produced is tightly controlled]
The amount of oil produced is tightly controlled
But Saudi Arabia has said it wants to maintain the cuts - arguing the high price of oil is its reward for controlling oil production.

Dr Leo Drollas, Deputy Director of the Centre for Global Energy Studies, predicted petrol prices could go up by 2p a litre in the next few weeks, if the oil price trend continued.

He said that in the US, a 25% rise in oil prices could lead to a 1% rise in inflation, although the effect was likely to be less serious in the UK and rest of Europe. Eventually, any impact on inflation could hit growth.

He warned the oil-producing nations should not keep prices artificially high: "It's not in their longer-term interests to keep prices as high as this because it encourages oil production elsewhere, outside Opec.

"It affects inflation and growth internationally and affects demand for oil in years to come so it's not a good idea."

The US may apply pressure behind the scenes at the Opec countries' next meeting in September to boost output again and bring prices down, said Dr Drollas.

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