Crude Oil May Top $105/B.

Addressing the NBK forum, Goldman Sachs (GS) executive Arjun Murti, a managing director, on May 27 said world crude oil prices will remain high in view of a tight market. Murti said: "We thought that maybe somewhere within $50 to $70 [a barrel WTI crude oil price] we might get the economic damage and that it would take a major, not a minor, disruption to get to the $105 number. If we truly did have a major outage in a major exporting country then $105 will prove conservative". He said when GS issued a projected range of $50 to $105/b in March 2005, actual prices hovered around $55/b. WTI and Brent traded above $70/b recently. Katherine Spector, head of energy research for JP Morgan Securities, said market fundamentals pointed to petroleum prices reverting to a higher mean in coming years, adding: "The world is running out of easy barrels of crude [oil] production". She said marginal costs of oil production were rising.

Spanish newspaper El Mundo on May 28 quoted IMF Managing Director Rodrigo Rato as saying: "Oil prices are going to remain at high levels given the forecasts of rising demand and the supply limitations. They bring clear risks of inflation and [risks] to growth", adding that so far most economies had been able to absorb the high cost of oil without much extra inflation. He said: "Inflationary pressures in the world are being increased by the rise in the price of raw materials, but also by a monetary expansion that has not yet been fully corrected". Although interest rates had risen in major economies, monetary policy could not yet be described as restrictive, but that was because inflationary pressures had not yet shown their full strength, he said. He added: "Looking to the future, we can expect interest rates to keep rising, but moderately. Of course that is unless inflation shoots upwards".