Petrol prices could top 110c per litre

RISING oil prices could push the price of petrol up to over 110 cent per litre, a top economist warned last night.

That would require the price of oil to go to $70 per barrel. With some international experts forecasting a price per barrel of $100, a figure of $70 per barrel was not excessive, said Alan McQuaid, chief economist, Bloxham Stockbrokers.

The Automobile Association is forecasting a rise to over 102c per litre by summer as demand forces prices up. Last year, oil per barrel averaged around $38.

Meanwhile, Saudi Arabia’s claim it could raise oil production by 1.5 million barrels per day failed to ease oil price tensions in the markets and prices held near record highs yesterday.

Some moderate easing occurred in the past few days, but US April contracts were up 14 cents to $56.93 yesterday - close to the all time intraday high of $57.60 dollars hit last Thursday.

Economists are pessimistic on future price outlooks.

Eunan King of NCB Stockbrokers believes a price range of between $40 and $70 dollars per barrel is the new norm.

Big imponderables are the demand out of China, which boasts 1.3 billion in population and just 7% of global oil consumption.

That contrasts sharply with the 250 million population in the US which consumes 20% of total global oil production annually.

Prices at current levels “are fairly well underpinned with growing demand form China and India a key factor in the changing price environment,” he said.

At current prices, he sees no major threat to economic growth.

The economy can live comfortably with the current price levels even if they hit $70 per barrel in the future, he said.

Oil prices would have to soar to $90 per barrel to match the prices reached in 1980. Prices then peaked at $39.50. Adjusted for inflation, the current figure would be have to be near $90 to give a comparative price level, experts said.

However, even if the price went to $80 per barrel that would pose a “serious threat for the world economy,”, Mr King said.

In the present climate, NCB sees no reason to adjust its projected growth figures for this year and next of 6% Gross Domestic Product (GDP) for each year.

“We remain optimistic on the Irish economy who added the Central Statistics Office from 2001 onwards are being revised upwards to show better growth than economists claimed.”

Pat Delaney of the Small Firms Association (SFA) does not share that view.

Manufacturing lost 9,500 full time positions last year and competitiveness is a growing issue, he said.

Mr Delaney said every $10 a barrel increase in oil above the projected $45 price for 2005 knocks 0.5% off Irish economic growth.

If the current trend continues, growth forecasts for 2005 could unravel. SFA has cut its forecast to 5.1% for the year given the oil price situation, he said.

Overseas economists are forecasting higher prices in the months ahead.

Investec analysts Bruce Evers said oil prices will hit new highs later this year.

That is likely to happen when demand goes over 86 million barrels per day, a figure well above the 84.3mpd forecast for global demand for 2005 made earlier.