The International Monetary Fund (IMF) has been warned by its internal research team that there could be a permanent doubling of oil prices in the coming decade with profound implications for global trade.
“This is uncharted territory for the world economy, which has never experienced such prices for more than a few months,” the report warns.
The new IMF “working paper” come as the value of crude on world markets remains at the historically high level of $113 a barrel and just after the International Energy Agency reported that consumption would accelerate for the rest of this year in line with a wider economic recovery.
Undertaken amid mounting concerns about “peak oil”, the IMF study does not presume that there is a constraint on how much oil can be taken out of the ground. It prefers to believe that extraction rates will depend on the price that will be able to be charged for the final product.
“While our model is not as pessimistic as the pure geological view that typically holds that binding resource constraints will lead world oil production on to an inexorable downward trend in the very near future, our prediction of small further increases in world oil production comes at the expense of a near doubling, permanently, of real oil prices over the coming decade,” argues the report, entitled The Future of Oil: Geology v Technology. [Paper at http://www.imf.org/external/pubs/ft/wp/2012/wp12109.pdf ].
The paper, which contains a warning that it should not be reported as representing the views of the IMF itself was nevertheless prepared by several authors including Jaromir Benes, a former head of macroeconomic modelling in the Czech National Bank but now employed by the IMF in Washington.
It says that its oil market “models” have been significantly more accurate than others in a world where predictability has been historically low. But it adds: “Our empirical results also indicate that if the model’s predictions continue to be accurate as they have been over the last decade… the future will not be easy.”
Meanwhile, the Paris-based International Energy Agency, which advises industrialised nations, including the UK on energy policy, said crude prices would remain high in 2012, due to tensions between Iran and the west. “The path of market fundamentals for the rest of the year remains highly uncertain and geopolitical risks will likely continue to keep prices high,” the agency said.
The agency believes that a period of declining demand – triggered by the slowdown in the global economy – is now over and the upward trajectory resumed.
The Opec oil cartel made similar statements a week ago, saying that oil demand growth had “stopped its declining trend”.
OPEC ups 2012 world oil demand forecast
VIENNA (AFP) – OPEC revised its 2012 world oil demand outlook slightly upwards on Thursday citing a stable US economy and the shutdown of nuclear plants in Japan, which boosted demand.
The Organization of Petroleum Exporting Countries predicted 2012 demand at 88.67 million barrels per day (bpd), up 0.90 million bpd from 2011, in its latest monthly report. [About 1% higher].
This represented a minor hike from its previous estimate in April which stood at 88.64 million bpd.
“Given the stabilisation of the US economy and the shutdown of Japanese nuclear power plants, world oil demand growth has — at least for the short-term — stopped its declining trend and is showing some growth,” OPEC said.
Demand outside the OECD developed countries was higher while those such as India and Saudi Arabia were consuming more than expected, it added.
However, Europe’s economic worries continued to hurt demand, OPEC said, warning that high oil prices in the US could also have a dampening effect on the approaching summer driving season.
“The most important sector (in the US), transportation, continues to consume less oil than it did last year, due mainly to the country’s economic activity and high retail prices,” the report said.
With economic developments and fuel prices uncertain, “the outlook for US oil consumption for the entire year remains rather pessimistic,” it added.
World oil demand could also be impacted by events in Japan, which switched off its last working reactor on Saturday amid a debate over whether the country should retain nuclear power in the wake of the Fukushima disaster last year.
“Should Japan restart its nuclear plants, the country’s high oil-usage would slow down dramatically,” OPEC said.
The 12-member cartel, which accounts for about a third of global oil supply, pumped some 31.62 million bpd in April, up 0.32 million bpd from March, with members Iraq, Libya, Saudi Arabia, Nigeria, and Angola hiking production.
Iran on the other hand saw output drop, OPEC said, citing secondary sources.
On Thursday, oil prices slipped as a sharper-than-expected US stockpile gain further spooked nervous investors already shaken by worries over the eurozone in the wake of French and Greek elections, analysts said.
New York’s main contract, light sweet crude for delivery in June, dipped 12 cents to $96.69 per barrel in the afternoon and Brent North Sea crude for June shed 39 cents to $112.81.
Information of the price of jet fuel