Current Oil Prices Will Reduce Growth • IMF's Lipsky

Current oil prices, which are holding resolutely above $130 a barrel, will cut into world economic growth this year if sustained, IMF First Deputy Managing Director, John Lipsky, said on Sunday.

"If sustained, it will reduce global growth, although at the same time global growth has been somewhat more resilient in the early part of the year than we anticipated," Lipsky told Reuters on the sidelines of an emergency global oil summit in Jeddah, Saudi Arabia.

The world's top energy policy makers are meeting in the Red Sea city of Jeddah for emergency talks on halting oil's unrelenting rally.

Saudi Arabia will try to coax its few OPEC peers who have spare production capacity to join the kingdom in pumping more barrels, although some in the cartel have been openly skeptical that raising output will rein in prices they believe are driven more by speculation than market fundamentals.

Riyadh summoned both producers and consumers, plus chief executives from big oil firms, to the meeting after an unprecedented surge on June 6 of nearly $11 sharpened fears that oil prices were jeopardising the world's economic health.

Oil has doubled in a year to almost $140 a barrel, driving inflation rates higher around the globe, sparking street protests from Asia to Western Europe, and forcing the world's major central banks to concede that they may have to start raising interest rates to curb rising consumer prices.

Saudi Arabia, the world's biggest oil exporter, said in recent days it would raise output to 9.7 million barrels per day (bpd) in July, its highest rate in decades.

Major oil consumers in Asia, including the world's number two user, China, have recently raised cheap domestic fuel prices that analysts say aided rapid demand growth, while U.S. regulators are seeking more oversight of futures market speculators.

Fresh ideas appeared in short supply yesterday, with the final communique likely to shy away from any hard measures and focus on the importance of greater transparency in oil markets and more investment into production and renewable energy sources, according to delegates who had seen the draft.

"It is a good common statement of concern. It probably won't meet anybody's expectations or needs," a source who had seen a copy of the draft told Reuters.

German Economy Minister, Michael Glos, warned that oil prices, which fell from last Monday's record high near $140 to close at $134.62 on Friday, could rebound.

Meanwhile a Gulf OPEC official told Reuters on Saturday that the meeting would discuss a proposal for an output boost from other OPEC members who can bring on extra production quickly, namely United Arab Emirates and Kuwait.

Another OPEC delegate said it was not yet clear whether they would join in any output rise, while members such as Libya and Algeria have said the cartel, which pumps a third of the world's oil, should not be putting more crude on the market.

Kuwait Oil Minister Mohammad al-Olaim said his country would "not hesitate" to boost output if it saw the need, but a day earlier he said it was too early to talk of an increase.

Saudi Arabia, which has a policy of keeping a cushion of spare capacity, may also consider increasing its capacity beyond an existing goal of 12.5 million bpd by the end of next year, the source said, a move that would combat fears the holder of the world's biggest reserves may be reaching its peak.

The meeting also highlighted the stark divide between those who believe high oil prices are purely the result of soaring demand from consuming nations and slower growth in oil production from those who see speculators as the primary force behind the rally, a camp that includes most OPEC members.

Investment funds have pumped billions of dollars into oil and other commodities as they seek to diversify holdings and flee poorly performing asset classes, but U.S. Energy Secretary Sam Bodman said that the focus on speculation was misplaced.

— Reuters