Academic: Oil price may hit US$50


  • Business
  • Friday, 20 Aug 2004

FACTORS that have led to soaring crude oil prices could push the price per barrel of oil well past US$50, said an academic. 

“It is the base demand and the fragility of supply that is driving oil prices up. I think prices are going up much more, probably between US$50 and US$55 per barrel,'' said Prof Richard Vietor, senior associate dean at Harvard Business School. 

Vietor believed that energy demand was likely to grow by 1.7% annually, with petroleum demand projected to rise by 1.6% per annum and natural gas demand by 2.4% annually. 

He said the main reason for the spike in oil prices was rising demand, primarily by China and India. He estimated that China's demand for oil is expected to rise from 4.9 million barrels per day (bpd) in 2000 to 12 million bpd. 

Demand from India is projected to rise from 2.1 million bpd to 5.6 million bpd. “This is putting so much pressure on oil prices,'' Vietor said. 

Vietor said another uncertainty was the nature of the countries with the most supply of oil. 

He said most of these countries were not stable, and had been rated as being more corrupt than the average nation. They have been given poor economic freedom ratings. 

Vietor made the remarks at a dinner talk organised by the Harvard Business School Alumni Club of Malaysia in Kuala Lumpur on Wednesday.  

His presentation had centred on the direction of supply and demand for oil and natural gas until 2030. 

Vietor sees 60% of the growth in demand coming from developing countries. He also sees China becoming the number one consumer of energy among such countries. 

He estimated that to cater to such a huge rise in energy demand, US$16.5tril would have to be invested in energy development until 2030, with nearly US$10tril in the setting up of electricity plants. 

Investments in oil and gas would be around US$6.2tril up to 2030. 

“There is a huge need for foreign investment in energy in developing countries,'' Vietor added. 

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