WASHINGTON, 9 April 2005 — The IMF said yesterday that rising living standards in China and the rest of the developing world will keep oil prices sky-high for decades to come, with even $100 a barrel not ruled out.
In its twice-yearly World Economic Outlook, the International Monetary Fund predicted that in 2030, the average price of a barrel of oil would stand in the range of $39-$56 in real terms.
In nominal terms, without adjusting for inflation, the price would be $67-$96, it said, owing 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 percent since the start of the year to surpass $58 a barrel for the first time.
IMF chief Rodrigo Rato warned this week that the high prices would shave between 0.25 and 0.5 percentage points off global economic growth this year. Strong growth and high deficits in the United States, compared with lackluster growth in Europe and Japan, have resulted in global imbalances that so far the financial system has been able to cope with.
“But if oil prices, inflation and currency movements trigger abrupt changes, the situation could deteriorate dramatically,” Rato told the German business daily Handelsblatt.
Rising demand for petrol coupled with lack of refining capacity in the United States, the world’s biggest oil consumer, is one factor blamed by analysts for the record-high prices.
But surging demand in emerging economies, headed by China and India, is also high up the list.
Presenting part of the Outlook report on Thursday ahead of its full release next week, IMF officials said high oil prices were now a “permanent shock” for the world.
“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 roiled 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 now in the early stages of a “super spike” period and Chinese growth rates showing no signs of flagging.
Rajan said that such a price range was not the most likely scenario.
“The point that we want to make is that the market is tight. So large movements either in demand or in supply can have significant effects on price,” he said.
The IMF report projected that oil consumption will increase from about 82 million barrels a day last year to almost 140 million in 2030.
China alone will contribute almost a quarter to the increase in demand between 2004 and 2030 due to its fast economic growth and large population, the IMF said.
“This strong growth in demand will mainly be fuelled by improving standards of living in developing countries,” Rajan said.
“For example, based on the experience of other countries, China is reaching the stage of per capita GDP (gross domestic product) where transport demand will explode because more and more people will buy cars.”
The number of vehicles in China could rocket from 21 million in 2002 to almost 390 million in 2030, the IMF forecast.
