G8 finance chiefs to tackle soaring oil, food prices

Finance ministers from the Group of Eight rich nations this weekend will discuss ways to limit the economic damage of soaring oil prices that have eclipsed the credit crisis as their biggest worry.

But experts said the G8 powers have few obvious options to cool the commodities boom in the near future, with any calls for the Opec producer cartel to open up the taps likely to fall on deaf ears.

Soaring crude oil prices are causing growing concern in the major economies and raising the prospect of credit tightening by central banks to contain inflation, even as global economic growth slows, led by the United States.

While the fallout from the US credit crunch continues, the sense of alarm on world markets seen after the turmoil erupted last year appears to have eased, helped by central bank action to shore up the financial system.

Now soaring oil prices appear to have replaced the subprime loan crisis as the main worry for global policymakers, said Tim Condon, head of research at ING Financial Markets in Singapore.

"The subprime worries linger but the authorities, at least in the US, seem to be suggesting they pose less of a risk than they did, whereas the oil price shock is really pressing both on the growth and inflation fronts," he said.

Top finance officials from Britain, Canada, France, Germany, Italy, Japan, Russia and the United States will gather in the western Japanese city of Osaka for a two-day meeting starting on Friday.

Energy officials from G8 nations plus China, India and South Korea on Sunday called on major oil producers to increase investment to keep markets well supplied in response to rising world demand.

But Japanese Finance Minister Fukushiro Nukaga acknowledged last week that the G8 may not be able to come up with measures to reduce oil prices "overnight."

Oil producers insist there is no shortage of oil on global markets, blaming speculators and the weak US dollar. But analysts say they could still do more to take some of the speculative froth out of the market.

"I think OPEC's got justification to suggest that supply is really ample. It's certainly not tight. But I think what they choose to ignore is that they do have a big sway over sentiment," said Mark Pervan, head of commodities research at Australia and New Zealand Banking Group in Melbourne.

If speculators thought Opec would react to high prices by increasing supply, it would "take a fair bit of steam out of the market," he said.

Soaring food prices and joint efforts to tackle climate change are also expected to be high on the agenda at the G8 meeting.

Food prices have doubled in three years, according to the World Bank, hurting developing nations in particular and sparking unrest in some countries and food export restrictions in others.

Although central bank chiefs will be absent from this weekend's G8 meeting, markets will be looking for any signs of increased concern about the weak dollar, particularly in Washington.

Federal Reserve chairman Ben Bernanke has warned that a weaker dollar is adding to US inflation pressures.

But analysts said European officials may be reluctant to agree to saying anything in the joint statement that would drive down the euro as that would stoke inflation in the eurozone, leading to higher interest rates.

"We doubt that the Europeans would be so comfortable to watch the euro come off dramatically because of the extra inflation headache that could induce," said David Mann, currency strategist at Standard Chartered in Hong Kong.

If the G8 can help put a floor under the dollar, however, that could help to keep a lid on oil prices, analysts said.

There is a high inverse correlation at the moment between the dollar and oil prices, which are denominated in the US currency, said ANZ's Pervan.

"Where they can they'll try to talk the dollar up because they know it should have an impact on the oil price in the short term."