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IMF sees high oil prices through 2007

The strong US and Chinese economies as well as an array of supply issues look set to keep oil prices high next year.

india Updated: Sep 14, 2006 11:13 IST

The strong US and Chinese economies as well as an array of supply issues look set to keep oil prices high next year, with markets pointing to a price of $70-75 a barrel, the International Monetary Fund (IMF) said on Thursday.

The IMF warned that a further escalation in oil prices beyond that level cannot be ruled out in the event of deteriorating tensions involving Nigeria, Iran or other key crude suppliers.

"Oil price increases over the past eight months have reflected buoyant global activity, which has tempered the response of oil demand to higher prices, and supply concerns related to geopolitical uncertainties," the IMF said in its semi-annual World Economic Outlook report.

"Looking forward, with spare capacity expected to remain tight, futures markets suggest that prices of crude oil will remain high for the remainder of 2006 and 2007."

Spiralling oil prices since 2003 have had little impact on demand, which remains robust overall principally due to the strong gross domestic product (GDP) growth in China and the United States, the IMF said.

Crude prices have little chance of dropping sharply towards $50 unless energy demand tapers off sharply due to slowing economic growth or supply worries ease in key oil producers, the report said.

"Overall, it appears that price increases since 2003 have had some dampening effect on demand but the strength of GDP growth in many countries, especially China and the United States, has prevented a fall in overall consumption," IMF said.