The European Union's top energy official said yesterday that oil-producing states were likely to keep prices stable as crude hit new highs on markets.
As well as being consumers of the product, EU states are also hoping high oil prices will not hit an economic recovery. The European Central Bank (ECB) is also wary of high prices stopping it meeting inflation targets this year.
Responding to such worries, European Energy Commissioner Ms Loyola de Palacio said she was sure oil-producing countries would keep a lid on rises in the market. "I have no doubt that the producing countries will keep to their promises and take all the measures necessary to maintain the price of oil at a reasonable level and avoid excessive volatility," the commissioner said in a statement. "It's in the interest of consumers and producers to maintain oil price stability," she added.
She spoke as oil prices hit six-month highs, boosted by Iraq's threat to cut off supplies to the West as Israeli-Palestinian violence escalated. The latest oil price rise is very unwelcome news for the Irish economy.
"If the price rise is sustained, it will be passed on to consumers and will erode the profit margins of the industries that are heavy oil consumers," according to Mr Colin Hunt, economist with Goodbody Stockbrokers.
The increase in oil prices will put further upward pressure on Irish inflation just when it is proving "stubbornly sticky", he warned. Rising tension in the Middle East in recent weeks has resulted in petrol prices drifting upwards on garage forecourts by about three to four cents a litre, he said.
Higher oil prices erode consumer spending through higher inflation dampening retail sales activity, he explained. They add to industrial costs and reduce the profit margins of industries which are heavy oil users. Combined with a weak euro, the higher cost of oil means a double blow for non-dollar economies, Mr Hunt said. But he said oil prices were still well off the high levels of late 2000 when the price of a barrel peaked at around $34.
Economists have warned that a recovery in the US and the euro zone will be threatened if oil fails to subside.
