IMF: Oil could hit $100, hurt growth
Global lending organization says prices will remain volatile through 2030, posing 'serious risk.'

April 7, 2005: 3:40 PM EDT

WASHINGTON (Reuters) - China's growing thirst for petroleum, tight supplies and little spare production capacity will keep oil prices volatile through 2030, with the possibility of spikes as high as $100 a barrel, the International Monetary Fund said Thursday.

"In short, it will continue to be a rocky ride going forward, with a wide band of uncertainty surrounding high expected prices," said Raghuram Rajan, the IMF's chief economist.

As living standards improve in China, India and other developing nations, oil demand will increase, especially for cars and trucks, Rajan told reporters. The IMF forecast indicates that China will be consuming nearly as much oil in 2030 as the U.S. consumes now. Currently the U.S. consumes about a quarter of the world's oil production.

"The oil market will remain tight in the coming years, and high and volatile oil prices will continue to present a serious risk to the global economy," the IMF said in its semiannual World Economic Outlook report.

Through 2010, oil prices will be subject to large swings as non-OPEC producers try to meet incremental demand. "Since the prospects for higher spare capacity are unfavorable, the market will likely remain tight and vulnerable to shocks," it said.

From 2010 through 2030, after non-OPEC output has peaked, the world will be more dependent on the Organization of Petroleum Exporting Countries to meet demand. That will also bring "growing upside risks to prices," the report said.

The IMF forecast average world oil prices in a range of $39 to $56 per barrel in 2030, as expressed in 2003 dollars. That would represent a range of $67 to $96 per barrel in nominal terms.

For 2005, the average world oil price will be about $52.23 a barrel, IMF analysts said. That is sharply higher than the $37.25 a barrel than the IMF forecast in its September report.

$100/Barrel oil possible
U.S. crude oil soared to a record high of $58.28 per barrel on Monday in a buying frenzy triggered by a Goldman Sachs forecast that prices could spike as high as $105 per barrel.

Rajan said such a high price was possible.

"To the extent that there is some kind of supply disruption, $100 a barrel does not seem outlandish," he said. "Is it the most likely scenario? I think not necessarily. It depends on how the market evolves."

The new IMF report estimated world oil demand will grow to 138.5 million barrels per day in 2030 from 82.4 million bpd in 2004.

Significant growth will come from China, which was forecast to consume 19 million bpd of oil in 2030, more than triple the amount used in 2004, the IMF said.

Rising incomes in China mean its motor vehicle ownership rate will soar to an estimated 267 vehicles per 1,000 people in 2030, up from just 16 vehicles per 1,000 people in 2002. By comparison, the United States is forecast to have 843 vehicles per 1,000 people in 2030, up from a rate of 812 in 2002.

Demand for OPEC oil will more than double to a range of 61 million to 74 million bpd by 2030, the IMF said. To meet that demand, cartel members would need to invest about $350 billion to increase production capacity, it said.

However, one economic model suggests that OPEC's optimal world oil market share is 41 percent to 46 percent for cartel members to balance gains from higher output against the resulting lower prices. That would put OPEC output at 52 million to 59 million bpd in 2030, the IMF said.

"Consequently, OPEC may not have an incentive to significantly increase its current market share of just below 40 percent," it said.

The IMF will publish its entire economic report at