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Daily Telegraph (UK): High oil prices pose serious risk, says IMF ( 8 April 05


By Malcolm Moore, Economics Correspondent (Filed: 08/04/2005)


The International Monetary Fund yesterday warned that high oil prices are here to stay and will give the world economy "a rocky ride going forward".


In its World Economic Outlook, the IMF said "high and volatile oil prices will continue to present a serious risk to the global economy". It predicted that world oil demand will grow robustly, increasing from last year's figure of 82m barrels a day to 140m in 2030.


"This strong growth in demand will mainly be fuelled by improving standards of living in developing countries," said Raghuran Rajan, the IMF's director of research. "For example, China is reaching the stage of per capita GDP where transport demand will explode because more and more people will buy cars," he said.


The IMF estimates that China will contribute nearly a quarter of the increase in demand for oil, with car ownership jumping from 1.6pc to 27pc by 2030. In absolute terms, that would translate into 390m vehicles hitting the roads, leading to a need for 19m barrels of oil a day.


The recent spike in demand for oil has forced Opec to dramatically scale up its production. As a consequence, the oil industry is pumping close to its full capacity. The IMF said there was presently only 1.5m barrels a day of spare capacity compared with more than 5m barrels a day in 2002.


Yesterday, oil was was trading around $55.50 a barrel in London and New York. The IMF believes the long-term oil price will be between $39 and $56 a barrel, well above the range Shell and BP use for their long-term investment decisions.


Kevin Norrish, an oil analyst at Barclays Capital, said he believed the oil price would soon begin to fall back. "There is nothing in the US weekly inventory data to support another push up towards $60 a barrel yet," he said, adding that US stockpiles of crude and other oil products were building at the fastest rate for three years.


The IMF also played down the risks to the world economy presented by the size of the United States' current account deficit. The IMF said the weak dollar was helping to maintain America's effective credit worthiness.


Referring to the assets that the US holds abroad in foreign currencies, Mr Rajan said: "Over the last two years, approximately three-quarters of the increase in the US's liabilities as a result of the current account deficit has been offset by an increase in the value of its foreign assets as a result of the dollar depreciation, leaving the net foreign liabilities of the US relatively unchanged."


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