Economists Question IMF's Buoyant Outlook After Katrina Disaster
Paris (AFP) Sep 05 2005
While the full impact of Hurricane Katrina on the world economy has yet to be determined, some analysts are questioning an upbeat assessment from the head of the International Monetary Fund.
IMF managing director Rodrigo Rato sought to reassure observers on Saturday, saying the increase in global oil prices linked to the natural disaster in the US would have a far smaller effect on economic growth than in previous times.
"The world is now more resilient than in previous moments to rapid increases in oil prices," he told a news conference in Singapore, adding that world growth was forecast to continue at "above 4.0 percent".
He also talked down the importance of the damage in the southern US states of Alabama, Louisana and Mississippi.
"The weight of those states (devastated by the hurricane) in the total GDP of the United States is inconsiderable," he said.
There was evidence on Monday that Rato's confidence was not shared in all corners of the world. One week after the event, the counting of the cost is still ongoing.
The category-four hurricane brought crude oil production to a halt in the Gulf of Mexico region, helping oil prices to an all-time high of 70.85 dollars per barrel in New York last Tuesday and 68.89 dollars per barrel in London -- double the price of oil in 2003.
As well as the impact on the insurance industry, which will pick up a bill for the disaster estimated at 20-30 billion dollars (16-24 billion euros), the loss of companies and employment in the affected region and the impact on consumer confidence are also expected to weigh.
The chairman of the Inter-American Development Bank, Enrique Iglesias, said that Central American countries, whose resilience to the spike in oil prices is less than more developed economies, had already started to feel the pinch.
Katrina "has a lot of implications for us in the sense that the Central American area depends heavily on the supply of gasoline from the affected area" of the United States, Iglesias told reporters on Monday in Tokyo.
"Central America is extremely worried about the impact on prices," he said.
Honduras, which was itself devastated by Hurricane Mitch in 1998, has seen the price of gasoline rise by a dollar a gallon because of Katrina.
In the eurozone, there are fears that the rise in oil prices will kill off a forecast third-quarter reprise that the governments of France and Germany have been predicting for weeks.
Fears for the US economy have also led to a fall in the dollar against the euro, making European exports more expensive to foreign trading partners.
The price of oil fell back towards 65 dollars per barrel in London on Monday after the announcement Friday that industrialized members of the International Energy Agency had agreed to release some of their their strategic oil reserves to ease tension in the market.
But damage to the oil infrastructure in the Gulf of Mexico remained an immediate concern for the market, in particular the underwater pipelines.
In an article published in the Wall Street Journal, oil expert and writer Daniel Yergin reminded readers how hurricane Ivan in 2004 had caused damage to the pipelines and that Katrina was a more forceful storm.
Treasury Secretary John Snow said Friday the US economy was proving resilient to the "mind-boggling" impact of Hurricane Katrina, but warned of "a challenging time for the economy".
A rise in oil prices normally results in an erosion of consumer purchasing power because of the increase in costs of energy and the rise in prices.
Other consequences of the storm could be a temporary end to the Federal Reserve's cycle of progressive increases in interest rates.
by Perrine Faye
The price of Brent North Sea crude for October delivery fell by 1.22 dollars to 64.84 dollars per barrel in electronic deals. It had closed down 1.66 dollars on Friday after the International Energy Agency (IEA) said it would release 60 million barrels of crude products over an initial period of 30 days.
The market for trading in New York's main contract, light sweet crude for delivery in October, was closed on Monday owing to the Labor Day public holiday in the United States. It had ended 1.90 dollars lower at 67.57 dollars per barrel on Friday.
Prices were falling because the "International Energy Agency said it would release oil reserves to help ease the US energy crisis after Hurricane Katrina", Sucden analyst Sam Tilley said.
US Energy Secretary Samuel Bodman said Friday the United States would sell 30 million barrels of crude oil from its Strategic Petroleum Reserve on the market.
Another 30 million barrels of crude products such as gasoline, or petrol, was to be released by other members of the 26-nation IEA, with European countries expected to contribute the lion's share.
The initiative will make available to the market two million barrels of strategic oil reserves a day for an initial period of 30 days.
Oil prices have plunged since reaching historic high points early last week after Katrina swept through vital oil installations in the southern United States and the Gulf of Mexico.
New York's main contract last Tuesday hit a record-high 70.85 dollars per barrel, while in London Brent reached an all-time high 68.89 dollars -- leaving prices double the levels in 2003. Oil prices have shot up during the past couple of years, largely owing to increased demand in China at a time when the world's refineries are working flat out.
However they have fallen heavily since Friday, also as production operations slowly resume in the Gulf of Mexico, which normally supplies a quarter of total US crude.
"It's a combination of European countries releasing some of their strategic stockpiles and also the oil system in the US is slowly building up," Investec analyst Bruce Evers said.
"From 10 percent operating capacity last week, it's now at about 20 percent, with power starting to be restored and some plants functioning again, even though there are still a fair number of refineries that are completely out of action and probably will be for some months because of the extensive flooding," he added.
Elsewhere, a senior Iranian official said Monday that the OPEC cartel was likely to raise its oil production quotas by at least 500,000 barrels per day when it meets in Vienna later September.
"Given the current situation, it seems that the organisation will decide to increase the production quota in the next meeting," said the oil ministry's head of OPEC affairs, Javad Yarjani.
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Fed Rate Hikes Now In Doubt After Katrina Devastation
Washington (AFP) Sep 04, 2005
The Federal Reserve is being forced to rethink its plans for interest rate increases in the face of the calamity spawned by Hurricane Katrina in a strategic economic region, analysts say.