High oil prices are not likely to slip says IMF

THE IMF yesterday warned high oil prices were here to stay.

It dismissed the idea of prices returning to even $40 per barrel, let alone to the pre-Iraq price of $24pb, and said a spike in prices to over $100pb could not be ruled out.

The sky-rocketing prices will knock between 0.25% and 0.5% off global economic growth in 2005, said the IMF. Its report confirms last week’s warnings from Goldman Sachs that, in the present climate of scarcity, prices could go to $105pb as fears over future oil supplies spook the markets.

In its twice-yearly World Economic Outlook, the International Monetary Fund predicted in 2030, the average price of a barrel of oil would range between $39-$56 in real terms.

In nominal terms, without adjusting for inflation, the price would be $67-$96, it said, thanks to “exploding” demand for cars as countries such as China and India spend their new-found wealth. Fears of an economic crunch have intensified with oil prices, up by around 40% since the start of the year, to surpass $58 a barrel for the first time.

“To the extent that there is some kind of a supply disruption, $100 a barrel does not seem outlandish,” IMF senior economist Raghuram Rajan said in response to a Goldman Sachs study that unnerved the markets last week.

The investment bank predicted oil prices could go as high as $105 a barrel over the medium term, with US prices in the early stages of a ‘super spike’ period.

The IMF report projected oil consumption will increase from about 84 million barrels a day, this year, to 140 million in 2030.

Not all analysts agree with the gloom and doom.

Some have said the pessimists were over doing it, with speculators driving prices up.

An analyst said it was highly likely prices will slip back to $28 per barrel before the summer is over.