Oil could reach $200 before demand gets hit

By Santosh Menon

LONDON (Reuters) - The price of oil could rise to $200 a barrel in the next two years before it starts to seriously hit demand, fund manager Tim Guinness said on Tuesday.

"I am increasingly comfortable with the analysis which says the oil price is going to have to go to $200 before demand is dampened enough," Guinness, who is the chief investment officer of Guinness Atkinson Funds, told Reuters in an interview.

Guinness, a highly-rated fund manager who was the chairman of Investec Asset Management for four years before retiring in 2002, said he expected the spike to $200 to happen in 2010 and predicted the average price that year at around $160 a barrel.

Investment bank Goldman Sachs issued a similar prediction last week, saying oil could shoot up to $200 within the next two years as part of a "super spike" driven by poor growth in oil supplies.

Oil has relentlessly surged to new peaks and hit an all-time high of $126.40 on Monday, despite increasing evidence of demand destruction emerging in industrialised economies.

The International Energy Agency, the adviser to 27 industrialised countries, said on Tuesday world oil demand will rise less than expected in 2008. It said global oil consumption will rise by 1.03 million barrels per day (bpd), 230,000 bpd less than the previous forecast.

But Guinness, a 60-year-old who cycles to work on his folding bike, said the drop in demand in industrialised countries was more than compensated by booming demand in emerging economies, notably China, India and the Middle East.

"What is going on is that OECD demand destruction is somewhere between 200,000 to 500,000 barrels per day (bpd) at the moment, while demand growth in the developing world is still over one million bpd," he said.