BIS Annual Report - Oil Prices May Soon Spike Thanks To Non-OPEC Peak - Bloomberg [View All]

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June 24 (Bloomberg) -- Oil prices have a ``substantial'' risk of surging higher and boosting inflation because non-OPEC production may soon peak, the Bank for International Settlements said in its annual report.

``The short-run risks of sharp increases in oil prices remain substantial,'' the Basel, Switzerland-based BIS said in its 77th annual report today. ``The impact of oil price increases could be significant; a recent analysis estimates that a supply- induced doubling of prices would boost inflation in emerging Asia by as much as 1.4 percent points above baseline.'' The BIS, established in 1930 to manage Germany's World War I reparation payments, said the effect of energy prices on inflation has become exaggerated by the demands of biofuels on food prices.

The group blamed energy costs for boosting inflation in the nation's sharing the euro to 2.5 percent in 2006. It credited a drop in energy costs for slowing European inflation to less than 2 percent by the end of the year. Biofuel demand for commodities such as corn has raised inflation risks in nations such as Mexico, where corn is used in food-staple tortillas, the BIS said.

The 244-page report said investment hasn't increased oil supplies, raising concerns that production could peak from nations outside the Organization of Petroleum Exporting Countries.

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