Oil prices likely to be on uptrend


  • Business
  • Saturday, 28 Aug 2004

BY DANNY YAP

OIL prices are likely to continue to be on the uptrend at least in the medium term due to strong demand from rapidly developing countries like China and India, according to Harvard Business School senior associate dean director (Asia Pacific) Richard Vietor. 

“The US alone guzzles up about one-third of the world’s oil production,” he told StarBiz last week in Kuala Lumpur. 

Vietor was the guest speaker at a dinner function hosted by Harvard Alumni Association, where he gave a talk on Energy Security: Spreading Risks.  

He said demand for energy, including oil would continue to grow, despite efforts to control prices, due to surging demand from developing nations led by India and especially, China. 

“The energy requirements of China would equal that of the US in the near future,” Vietor said, adding that about 60% of world energy demand would come from developing nations. 

He said studies showed that the average annual growth rate (AAGR) of China from 1990 to 2000 was 9.9%, while the world's AAGR in the same period was 3.3%.  

Richard Bietor

Vietor predicted oil prices would hit US$50 per barrel. 

“Unless there are alternative sources of energy, oil prices are likely to increase,” he said. 

On the impact of higher oil prices on Malaysia, he said so long as the country is a net oil exporter, the damage will be negligible but it could hurt in the long term, if its major trading partners like the US suffer.  

Vietor said the impact of higher energy prices would result in companies incurring huge investment costs, infrastructure and production costs. 

“Although international trade will continue to increase, energy security issues will become more serious,” he said. 

Vietor added that if oil and energy prices were high for an extended period, the economies of developed nations like the US, and those in Europe, would weaken and would ultimately affect developing countries. 

He also touched on the future energy requirements of several developed and developing countries and possible new energy sources.  

An analyst said US$50 a barrel was a resistance level and more importantly, the “psychological level” that would trigger many governments to take serious measures to control energy consumption for fear of spiralling oil and energy prices affecting their economy. 

“It's not at the panic level but certainly worrisome,” he said.  

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