Washington -- High oil prices are likely
to become a sustained feature of energy markets for years
to come and will continue to present a “serious”
risk to the global economy, an International Monetary Fund
(IMF) official says.
Because world’s spare production capacity,
now at less than one-third of the 2002 levels, is not expected
to rise significantly any time soon, any supply disruptions
or unexpected changes in oil demand can cause sharp price
surges, Raghuram Rajan, the IMF chief economist, said.
Spare production capacity refers to oil
reserves that can be quickly turned into crude oil and brought
on the market to moderate oil-price increases.
“In short, it's going to be a rocky
ride going forward," Rajan said.
He made the comments during an April 7 teleconference
with reporters on the IMF’s biannual global financial
stability report. (The transcript
of the teleconference can be viewed online.)
According to IMF projections, oil consumption
will almost double by 2030, driven by rapidly growing demand
in major emerging markets such as China and India. In the
short run, production capacity increases are not likely
to be dramatic, however. Investment in exploration for and
transport and refining of oil has not been “overwhelming”
due to the high price volatility and restrictive regulations
in major oil-producing countries, Rajan said.
David Robinson, deputy chief economist who
also participated in the teleconference, said that high
oil prices are likely to stay for the foreseeable future.
“We're looking at a situation where
we think that the shock that we've seen to prices is a permanent
shock,” he said.
In the report, the IMF projects crude real,
or inflation-adjusted, oil prices reaching $34 a barrel
in 2010 and rising to $39-$56 a barrel in 2030. These projections
are above oil industry and International Energy Agency forecasts.
Robinson said that countries, particularly
emerging markets, need to adjust to the new situation.
The IMF recommended a number of measures
that working in concert could stabilize and possibly bring
down oil prices. The recommendations include increased market
transparency, reduced barriers to investment in oil-producing
countries and larger strategic petroleum reserves in major
oil-consuming countries. (The relevant
chapter of the report can be viewed online.)
Federal Reserve Chairman Alan Greenspan
said, however, that higher oil and natural gas prices should
eventually decrease demand for energy and stabilize its
Based on historical evidence, whenever higher
prices persist, energy use declines over time, Greenspan
said April 5 at a petrochemical industry gathering.
“Market forces play the key role in
conserving scarce energy resources, directing those resources
to their most highly valued uses,” he said.
Greenspan said that making cars driven by
Americans more fuel-efficient will be of “critical
importance” in conservation efforts.
But higher oil prices will not only increase
conservation but also encourage broader exploration for
oil and other fuels and research and development that can
produce new approaches to energy generation.
Thus, he said, it is important not to interfere
with market forces.
“We must remember that the same price
signals that are so critical for balancing energy supply
and demand in the short run also signal profit opportunities
for long-term supply expansion,” he said. (The full
text of his remarks can be viewed online.)
On the same day, the House Energy and Commerce
Committee started considering an energy bill that would
provide incentives to increase supplies of oil and natural
gas as well as electricity derived from clean coal and renewable
The bill, which retains most elements of
bills that stalled in Congress during President Bush’s
first term, contains provisions that would ease regulatory
restrictions on expanding refining capacity and building
new terminals for imported liquefied natural gas.
Washington File Staff Writer
(The Washington File is a product of the Bureau of International
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