Oil could surge to $50 US a barrel if war happens: economist

www.cbc.ca Last Updated Thu, 20 Feb 2003 11:11:20

TORONTO - A war against Iraq could drive already-high oil prices up even more, possibly past $50 US a barrel, a Canadian bank economist cautioned Thursday.

Oil prices are up on war jitters"We believe that the war premium on oil prices amounts to as much as $4 US a barrel and prices could spike above $50 US a barrel if there is a war against Iraq," Earl Sweet, assistant chief economist at BMO Financial Group, said in a commentary.

If a war does happen and oil prices spike upward, the increase likely won't last for long. Governments will likely free up some of their strategic reserves to take the upward pressure off prices, Sweet said.

"War issues aside, given recent significant increases in OPEC output and the usual sharp decline in demand during the spring, we expect oil prices to ease from their first quarter highs and to average $25.75 US per barrel in 2003, and $22.75 US per barrel in 2004," he said.

On Thursday, West Texas Intermediate oil, the U.S. benchmark, was trading at $37.18 US per barrel.

Rising oil costs have been hitting Canadian consumers in their wallets. Higher oil prices have pushed up the cost of gasoline and home heating oil sharply in recent weeks.

The national average for a litre of regular gasoline hit 82 cents this week, up 1.3 cents from the previous week, according to consulting firm MJ Ervin & Associates Inc. The average price of home heating oil jumped 0.4 cents to 68.7 cents a litre.

BMO Nesbitt Burns said energy prices rose 13 per cent alone in January.

"There is no question that the driving forces behind the oil price increase have been the war premium caused by ongoing uncertainty in the Middle East and the strike-induced sharp reduction in output in Venezuela," Sweet said.

The same gloomy international political forces sent world investors into traditionally safe havens such as gold, he added.