No Cheap Oil For Years, Says World Bank

Posted 11 June 2008 @ 08:04 am EET     Print     Reprint     E-Mail     Comments

Kampala (IBTimes.com) - Oil prices were likely to recede from their high levels to between $104 and $108 a barrel only in three to five years as world demand contracted and production increased, World Bank chief economist Justin Lin said yesterday.

New technologies, increased energy efficiency and lower consumption would drive down demand and prices, Lin said at his first media conference since taking office.


He was speaking during the annual World Bank conference on development economics which has drawn delegates -- including policy makers, academics and researchers -- from about 70 countries.

Yesterday the crude oil price fell to about $136 a barrel from the high of $139 last week.

Nobel Laureate in Econo-mics and Commission on Growth chairman Prof Michael Spence agreed with Lin, and argued strongly against any artificial attempt to reduce oil prices -- which he said had to remain high to provide incentives for the production of new technologies.

Spence said the oil price would increase in the short run before the demand response kicked in.

He recalled the oil price spike in the '70s which was followed by a significant fall in both demand and price.

"Whether you are optimistic or pessimistic really depends on whether you think our human ingenuity and technology, as well as our behaviour, are capable of adapting," Spence said.

He said food prices were spiking now because of an immediate supply problem "but on a five-year time horizon with moderately sensible policies we could easily see food prices go back down to more reasonable levels, though maybe not to the levels seen before".

"On a five-year time horizon I would call this temporary -- and a huge opportunity, especially for Africa and Brazil which have an enormous incentive to increase food production."

With fuel and energy prices soaring, the key macroeconomic and monetary policy issue facing low-income countries was imported inflation and its effect on growth, Lin said.

Spence said countries with no capital controls would find it difficult in this situation to control both their inflation and exchange rates.

SA was in a situation where targeting inflation meant a lack of control over the exchange rate which affected other things such as export diversification and employment.