Oil to soar above $90 next year says expert

Manama Other News

May 17, 2007 10:03:47

Oct 11, 2007 09:10:11

By MARK SUMMERS

MANAMA: Oil prices will soar above $90 per barrel next year, a Bahraini economist has predicted.

Bahrain Economic Society senior economist Mohammed Habib Ali told the GDN that a combination of the growth of economies such as China and India, continuing global population increases and rising consumption within top oil-producing nations will push the price of crude to record levels next year.

He also said it was time GCC countries used their high surpluses to fund renewable energy projects and begin moves to end fuel subsidies in the region.

"Oil will reach above $90 next year and the problem is not politics or economics as much as it is geology," he said.

"Oil by many estimates has reached its peak and both production and the number of new oilfields found are decreasing - but at the same time world population is growing and is estimated to reach its peak around 2030.

"Therefore we can only gather that we will witness prices continue to shoot up in the next few decades to come unless the world economy goes through a tough economic depression or a breakthrough in some competitive alternative energy is found leading to immediate and sudden adopting of its usage - something which at the moment you would say appears very unlikely," he added.

Mr Habib Ali cited the example of China, where crude oil imports for the first half of this year were up 11.1 per cent on the previous year, as typical of global trends likely to increase oil prices.

"Chinese industries have not mastered the use of energy efficiency techniques and use 20-100pc more energy per unit of output than the US and Japan.

"Chinese consumers purchased more than seven million vehicles last year and demand is increasing by 20pc per annum," he said.

The economist warned that the top five net oil exporters - Saudi Arabia, Russia, Norway, Iran and the UAE - registered a 3.7pc increase in their own consumption from 2000 to 2005, a trend that is set to continue and one which will put further pressure on fuel prices.

"Net exports are decreasing due to major exporting countries consuming more of their own oil, hence the need to abolish subsidies and think of innovative ways to conserve energy within those countries.

"People in these countries continue to consume more of it because they are consuming it for cheaper relative to all other commodities that are rising in price. People are just going to abuse this more and more," he said.

That's why countries such as Bahrain should look to abandon fuel subsidies, he explained.

"I am not for abolishing it all at once, but I believe there should be a gradual letting go. You cannot let go of anything suddenly - that would just shock the economy and that is not the right thing to go with anything.

"They should do something with the subsidy money such as invest more into renewable energy. This money should go into something very much constructive and productive."

The consequences of higher oil prices for countries like Bahrain could be serious, he added.

"You will probably experience a bit more inflation and that is exacerbated by the devaluation of the dollar so you are getting hit by both sides.

"You can expect further rises in real estate prices, especially if interest rates are kept where they are right now and not increased substantially," he said.

"By accumulating higher surplus in the short-run, the GCC has a perfect window of opportunity to start diversifying its economy by investing their petrodollars into alternative energy technology," he said. msummers@gdn.com.bh