High oil prices here to stay: IMF

NEW DELHI - Oil prices edged towards US$57 a barrel yesterday as the IMF forecast high energy costs to stay for the next two years.

The forecast was based on worries that robust demand would strain global supplies despite moves by Opec producers to raise output.

The world would have to live with lofty oil prices for at least the next two years due to a combination of strong demand and supply constraints, Rodrigo Rato, the managing director of the International Monetary Fund, said on Sunday.

World oil prices have climbed almost 50 per cent in the past year and scaled record nominal highs last Thursday. "We have to be aware that probably oil prices will stay high, although probably not at this level, in the next two years at least because of demand pressures - there is certainly very strong demand in the world for oil - and also because of certain supply constraints," Rato told reporters in the Indian capital.

The world economy enjoyed its strongest growth in 30 years last year, despite the spike in oil prices, and Rato said he expected growth of more than 4 per cent again this year.

But he said growth could be hit if oil stayed at current levels or climbed even higher and urged oil-producing countries to be more receptive to private-sector investment.

The Organisation of Petroleum Exporting Countries (Opec) on Wednesday announced an immediate 500,000 barrel per day (bpd) increase in output, with another half a million bpd to come should prices fail to ease. Saudi Arabia said the extra oil was meant to ward off a supply crunch at the end of 2005.

But with output already near a 25-year high, the group is stretched to meet demand growth. Other major exporters Russia and Norway also cannot add significantly to this year's supply.

Rato said, though, the supply bottlenecks forcing prices higher also reflected a lack of refining capacity, where the major responsibility lay with oil-consuming countries.

Stricter environmental concerns, along with decades of low margins caused by overcapacity, have made major oil companies reluctant to invest in new refineries in the United States and Western Europe.

Consumers needed to be aware of the real cost of oil, and Governments needed to diversify their sources of energy, he said.

"It's clear that at this level of prices - even if they're reduced a little bit in the medium term - Governments of all consuming countries have to have a very clear energy policy both in terms of demand and pricing," said Rato, who is on the last leg of a five-day trip to China and India.

"The problem for Opec members and their ability to control prices is that they are now at a stage where the market is aware of how much spare capacity they have, and it is not a lot," said Mark Pervan, a Melbourne-based analyst at Daiwa Securities. "So pledging more production just means less available supply from them."

- REUTERS