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Oil reached a record high of $139,12 a barrel on Friday in New York trade, reinforcing concern among world leaders and market analysts that the rising price will slow global economic growth even further.
Raymond Goss, joint head of the Johannesburg office of Investec Securities, said today was "going to be a hard day for the market all around" and that the JSE would "take its lead" from the closing US market, which was down more than 3% on Friday.
Goss said the oil price was "possibly the major factor" affecting the JSE within a "very inflationary environment". The a ll s hare i ndex lost 16,53, falling to 31724,73 on Friday and taking its decline last week to 0,4%.
Rising inflation expectations and a high oil price did not auger well for the outcome of the monetary policy committee meeting on Thursday.
The market had hoped "that in the best case" there would be a 50-basis-point interest rate hike by the Reserve Bank, but Goss said the oil price spike could cause the Bank to raise rates more aggressively.
Japan's trade minister, Akira Amari, said yesterday oil prices topping $130 a barrel could slow global economic growth, and he urged the world's biggest energy consumers to cut demand.
He spoke at the opening of a meeting of energy ministers from the Group of Eight industrialised nations, plus China, India and South Korea at Aomori in Japan. US Energy Secretary Samuel Bodman described the sharp oil price rise as "shocking".
Members of the Organisation of Petroleum Exporting Countries (Opec) , however, saw no need yesterday to pump more oil in response to last week's surge in oil prices.
"I think there is enough oil in the market," said Shokri Ghanem, head of Libya's National Oil Corporation.
The energy ministers also looked inward for solutions to oil's unrelenting rally, touting the need for domestic efficiency rather than piling pressure on a resistant Opec to pump more crude. "We will continue to vigorously promote policies and measures for improving energy efficiency," the 11 ministers, whose countries account for two-thirds of world energy consumption, said in a communique ahead of their meeting in Aomori.
Goss said the JSE was "already in a middle of a downturn" and the great danger was if people believed there was going to be a slowdown in the larger economies. If this was the case, it would lead to a "slowdown in commodities and resources", which had been important for the growth on the JSE in recent years.
Paul Hansen, group director of retail investing at Stanlib, said there was only "one share that would enjoy" the oil price news, which was Sasol.
"It will negatively affect the market in general. In particular, interest-rate sensitive shares such as banks, life assurers, retailers and property. Those w ill be the first to be hit because a high oil price implies higher inflation and therefore potentially higher interest rates."
Hansen said higher food prices had also been "partly ascribed" to high oil prices, with maize in the US reaching a record high on Friday of more than $7 a bushel (27kg).
Rising oil prices may slow the global economy this year, which the World Bank forecast in January would expand at a more gradual pace of 3,3% compared with 2007, citing a poor US outlook.
In S A , Minerals and Energy Minister Buyelwa Sonjica has proposed that the tax on fuel be reduced to lessen the burden of oil prices on consumers, especially the poor.
Europe and the UK are in the grip of protests by fishermen, trucking companies and taxi drivers over the imposition of fuel taxes on top of an oil price they say is driving them out of business.
source: allafrica.com/stories/200806090450.html
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