World oil prices have slipped back in volatile trading but tensions remained high in the markets as analysts warned that another flare-up in the Middle East could send prices rocketing again.
Brent North Sea crude prices eased down to $33.80 a barrel from $34.59 overnight after an early spike upwards. In New York, light crude fell 66 cents to $35.40 a barrel.
Despite the declines, oil prices remained within striking distance of the 10-year highs set during extraordinary trading on Thursday. High prices will continue to fuel inflationary pressures in the Irish economy, but economists believe its impact is unlikely to be sufficient to threaten economic growth.
They suggest the price of oil will stay at around $33 a barrel into 2001, regardless of whether the conflict in the Middle East is quickly resolved, and will be a feature of Irish inflation rates.
Official inflation figures for September will be issued on Tuesday and are expected to show another rate increase. In August, the rate of inflation was 6.2 per cent and economists now forecast the September figures will show the rate has advanced to 6.4 per cent or higher and could increase to 7 per cent in November.
Mr Dermot O'Brien, economist at NCB Stockbrokers, says higher oil prices will feed into Irish inflation rates but are unlikely to dampen growth prospects in the Irish economy. Mr Alan McQuaid, economist at Bloxham Stockbrokers, believes factors such as the supermarket price war and the reductions in telephone charges announced by Eircom will offset some of the impact of higher oil prices, but he suggests inflation could be running at 7 per cent when the Minister for Finance delivers the Budget in December. Mr McQuaid says inflation is likely to fall to 44.5 per cent next year, in line with the Central Bank forecasts. The plunge in the US stock market immediately after the escalation of violence in the Middle East has been attributed to fears that this would affect US economic growth. Mr O'Brien believes these concerns are overdone, saying its impact would have to be significant to cause a slowdown in the US economy.
The fear remains that oil-producing Arab states could be drawn into the fray on the side of the Palestinians and could use oil supplies as a political stick to beat Israel's allies in the West.
Trading was relatively quiet yesterday because dealers did not want to take up positions that would look outlandish by Monday morning.
Analysts have warned that, if the Arab world resorts to an oil embargo to put pressure on the West, where oil reserves are already at precariously low levels, Thursday's vertiginous rise will look like a mere blip.
The Middle East turmoil has exacerbated an already extremely tight oil market. Concerns that supply might struggle to meet demand if the winter turns out to be cold have seen prices rising to levels not seen since the 1990 Gulf War.
