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IMF Projects Higher Oil Prices for 2005, 2006

Posted on: Thursday, 22 September 2005, 09:00 CDT

IMF projects higher oil prices for 2005, 2006

WASHINGTON, Sept. 21 (Xinhua) -- The International Monetary Fund (IMF) said on Wednesday that the world oil prices will remain at a higher level this year and in 2006 due to strong demand and limited supply.

In its latest World Economic Outlook (WEO) report released before the 2005 annual meeting of the World Bank and the IMF, the IMF said the world oil prices have been revised up to 54.23 dollars per barrel for 2005 and 61.75 dollars per barrel for 2006, compared with 46.5 dollars for this year and 43.75 dollars for 2006 forecasted in the last WEO report released in April.

These higher forecasts reflect a growing consensus that recent levels of consumption are likely to be more persistent and will continue to tax available spare capacity, thereby amplifying the price effects of any exogenous supply shocks.

However, the IMF also said that in contrast with the experience of the 1970s, the significant increases in oil prices since 2003 appear so far to have had a limited impact on the global economy. And the global economic growth for 2005 remains healthy at 4.3 percent, a marginal decline of 0.8 percent from the 5.1-percent growth in 2004.

The limited impact of higher oil prices resulted from several factors and the most important one is that the gain was largely because of a significant increase of consumption rather than an exogenous supply shock.

The IMF said that despite the recent OPEC quota increase, markets remain concerned that the current very low spare production capacity will be insufficient to meet demand growth next winter, while short- term supply uncertainties have persisted, most recently as a result of the extensive damage caused by Hurricane Katrina to oil production and refining facilities in the United States.

Meanwhile, the IMF also warned that the impact of higher oil prices may not continue to be so benign. If the increase in oil prices is permanent, as futures markets suggest, budgetary subsidies and consumer behavior will ultimately need to adjust.

Source: Xinhua News Agency - CEIS

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