Diversified Oil and Gas Holdings (DVFI)

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MELBOURNE (Reuters) - Strong global demand for energy and limited refining capacity are likely to keep oil prices high, posing a risk to world growth, the International Monetary Fund chief said on Saturday.

A decline in oil prices, which have soared over the past two years, is not "a visible scenario right now", IMF Managing Director Rodrigo Rato said at a news briefing before addressing a meeting of the Group of 20 financial leaders.

"The consequences of the oil prices that we do not see going down will put a dent in many different countries, in domestic demand, the current account deficit and inflationary pressures," Rato said.

Crude oil prices, driven in part by rapid industrialisation in China and India, reached a record high near $80 a barrel earlier this year before retreating to trade on Friday below $56 a barrel.

The world economy has managed to absorb the spurt in energy costs so far, putting in its best economic performance in three decades over the past four years.

But Rato said the longer prices stayed high the greater the inflationary risks and the more it would sap domestic spending power. Well-functioning oil markets with better transparency were needed to limit oil price volatility, and further investment in oil refinery capacity was essential, he said.

"We see very strong demand, and strong demand will continue, not only in China and India, but in the developed countries."

While oil producers had taken steps to increase production, insufficient investment in refining created capacity restraints.

"Oil prices will not come down unless investment is increased if capacity remains tight," he said.

Energy policy has a prominent place on the agenda of a meeting of the G20 finance ministers and central bankers, which aims to tackle the world's economic problems.

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