Rising oil prices can have positive effects on the economy, although when the price of liquid gold hits a certain level it causes damage, said Jim O’Neill.

The chairman of Goldman Sachs Asset Management said a rise in relative energy prices is a major positive in encouraging conservation, efficiencies and the search for alternatives.

However, there is a level at which oil prices start to inflict damage by boosting inflation and depressing real incomes.

O’Neill said, though, no-one can predict this level. I am of the school that quite strongly believes it is probably best seen in terms of oil price-adjusted financial conditions to observe how strong or not any real economic damage can be,’ he said.

‘In this regard, so far, and especially because many leading nations continue to undertake steps to ease financial conditions – China and Japan being the two most important recently – it is probably not yet much of an issue.’

He added: ‘At some stage, though, it could become one.’

However, O’Neil said he finds it difficult to be as bullish as others on the oil price - which is currently around the $124 mark - due to factors affecting both the demand and supply side of the equation.

‘Data shows that OECD oil demand actually declined in 2011 and, as I have remarked before, China is falling in love with a softer future GDP growth path as well as alternative energies (and nuclear still) as part of its latest stage of development,’ said O’Neill.

‘On the supply side, there is evidence that some alternatives are starting to come on stream. Natural gas in the United States is a particularly important example, and one that is still far from appreciated by the financial markets.’

He added that alongside these points, the stabilization of the longer term price since late 2009 makes it ‘a lot more difficult’ to be as bullish as many others.

In this sense, if policymakers needed to take action to bring back down the oil price, it might be easier than in previous years, said O’Neill.

He added: ‘Certainly if I were a policymaker, it would be something I would contemplate. Anyhow, by coincidence, I am off down to the Gulf for a few days at the weekend and I look forward to hearing views down there about the topic.’