A slowdown in oil production over the next 20 years may not be a “major constraint” on global economic growth provided it is “moderate,” the International Monetary Fund said.
“If, as in the benchmark scenario, the trend growth rate of oil output declined only modestly, world output would eventually suffer but the effect might not be dramatic,” the Washington-based IMF said in parts of its World Economic Outlook report released today.
At the same time it warned that such a limited impact “should not be taken for granted” as “important” risks to oil investment and capacity growth mean that “oil scarcity could be more severe.”
The IMF estimates that if growth in oil production falls by 1 percentage point from its historical trend rate of 1.8 percent, it will slow the global economic expansion by less than 0.25 percentage point per year. Over 20 years, oil prices would climb by a cumulative 200 percent, it said.
Crude prices have advanced this year as political unrest that toppled leaders in Tunisia and Egypt spread to Libya, Yemen, Bahrain and Syria. Oil for May delivery reached a 30- month high of $108.83 a barrel yesterday as NATO escalated its air campaign over Libya, bolstering concern the conflict will affect other energy-exporting countries in the region.
The IMF estimates that oil, the most traded commodity in the world, has entered “a period of increased scarcity,” which “arises from continued tension between rapid growth in oil demand in emerging market economies and the downshift in oil supply trend growth.”
Oil production from the Organization of Petroleum Exporting Countries dropped 500,000 barrels a day to 29.64 million barrels a day in March, according to JBC Energy.
“We estimate Libya produced 350,000 barrels a day last month, which compares with 1.38 million in February and 1.63 million in January,” the Vienna-based researcher said April 1.
Oil supply, including production of oils not classified as crude, will come “close” to reaching a peak by 2035, the International Energy Agency forecast in November in its annual World Energy Outlook.
OPEC will account for 50 percent of the world’s oil supply by 2035 while production from outside the group falters, the IEA said. Global oil demand will increase 18 percent to 99 million barrels a day in 2035, from 84 million a day in 2009, the IEA said.
Under the IMF main scenario, rising oil prices would lead to a global readjustment in economic forces via trade and capital flows. Exporting countries would experience rising wealth and domestic demand, which would put upward pressure on consumer prices. They would also increase savings, lowering the world’s real interest rates.
The higher prices would hurt oil importers’ growth, though the impact would be cushioned in some countries by a surge in exports of goods to oil-exporting counterparts and by rising demand for investment in response to the lower borrowing costs.
In a more pessimistic approach, IMF economists looked at the impact of a 2 percent decrease in annual oil output, as opposed to a slowdown in growth.
That would require an increase in oil price of 800 percent over 20 years, it estimated, an “unprecedented” magnitude whose effects on activity the IMF model could not capture adequately, it said.
Uncertainties over scarcity should push governments to make sure policies are in place that would enable their economies to adjust to large and unexpected shifts in output, the IMF concluded.
While it recommended against oil subsidies, which would surge and broaden fiscal deficits, the IMF said countries should have well targeted safety nets to protect the poorest. They should also aim at developing alternative sources of energy, it said.
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