The International Monetary Fund (IMF) said on Wednesday that the world oil market remains highly vulnerable to shocks with significant upside risks over the long term, and the ensuing higher oil prices are braking global economic growth.

In its semi-annual World Economic Outlook (WEO) released before the joint spring meeting of the IMF and the World Bank, the IMF said that, generally a 5-dollar-a-barrel increase of oil prices is expected to trim off global GDP growth by up to 0.3 percentage point, although the impact over the last year has been less than feared.

The WEO warned that the impact of further sharp increases in oil prices could be more marked, especially if they were to adversely affect confidence or inflationary expectations. There would also be a greater danger of negative supply-side effects in the long run.

Higher oil prices also pose particular risks for less advanced industrial countries, some heavily indebted emerging markets and many poor countries, the report said.

The WEO said that the increase in world oil prices over the past year, which was largely unanticipated, reflected the combined influence of robust global demand for crude oil, temporary supply shocks, heightened geopolitical uncertainties and limited spare capacity among OPEC countries.

The shortage of light sweet crude oil was also compounded by a structural imbalance in the refinery sector, the report said. Global refinery capacity levels remain only slightly above the 1980s' levels and utilization rates, which have risen gradually since 2002, remain above 90 percent. In addition, the majority of refinery capacity is simple distillation that is unable to process heavier crudes.

The report projected that future contract oil prices imply that average annual price will average around 52.23 dollars a barrel for 2005 and 52.59 dollars for 2006.

Moreover, long-dated futures prices increased sharply in early 2005 and remain persistently higher, reflecting ongoing concerns about limited spare capacity relative to demand growth over the medium term.

It said that the world oil market in the near future is likely to remain dependent on all oil-exporting countries maintaining output at close to capacity, leaving the global economy exposed to the risk of significantly higher oil prices arising from an unanticipated supply disruption.