High oil prices pose real economic risk, says IEA
Optimisim about the global economic recovery and interest from bullish investors have pushed crude prices close to $100 a barrel in recent sessions,levels last seen in Oct 2008
Oil prices near $100 a barrel pose a real risk to the world economy, the IEA warned on Tuesday, as the global economic rebound led to the strongest growth in oil demand for nearly three decades.
"Recent price levels already pose a real economic risk -- something of deep concern to producers and consumers alike," the International Energy Agency said in its latest monthly Oil Market Report.
Oil prices of $100 a barrel represent an 'oil burden' of five percent of gross domestic product on the global economy, the IEA calculated, and said such levels in the past "have clearly been associated with economic problems.
"Ultimately, oil producers, financial investors and consumers (notably import-dependent developing countries) all suffer under such a scenario," said the report.
Optimism about the global economic recovery and interest from bullish investors have pushed crude prices close to $100 a barrel in recent sessions, levels last seen in October 2008.
Harsh winter weather hitting Europe and parts of North America, as well as growth in China and other developing nations has also boosted prices.
Brent North Sea crude for delivery in March rose 29 cents to $97.72 a barrel in midday London trade. New York's main contract, light sweet crude for February delivery fell 12 cents to $91.42.
The IEA, the energy policy and monitoring arm of the 34-member Organisation for Economic Cooperation and Development, said growth in oil demand in 2010 was at one of the strongest rates in three decades, albeit from a low crisis level..Oil demand grew by 3.2 percent, an increase of 2.7 million barrels per day (mbd) year-on-year to 87.7 mbd, it said.
Moreover, "such demand strength appears to be more related to a buoyant economic recovery than to the frigid weather conditions that prevailed in most of the northern hemisphere in late 2010."
The IEA said preliminary data showed China's oil demand raced ahead 15.1 percent year-on-year in November, driven in large part by government-mandated closures of coal-fired plants to meet pollution targets that spurred use of small-scale electricity generators run on gasoil.
"Total demand has thus reached new historical highs (10.2 mbd), surpassing for the first time the symbolic 10 mbd threshold," said the IEA.
Given that the pace of economic recovery is widely forecast to slow down in 2011, the IEA forecast growth in oil demand to slow to 1.6 percent for a gain of 1.4 mbd year-on-year to 89.1 mbd.
The OPEC oil cartel, which pumps 40 percent of world crude, revised upwards its 2011 world demand growth estimate on Monday, given the pace of global economic recovery and cold winter weather in the northern hemisphere.
The Organisation of the Petroleum Exporting Countries (OPEC) said it was pencilling in world oil demand growth of 1.23 mbd to 87.32 mbd for this year, a 1.43 percent jump compared with 1.37 percent previously forecast.
The IEA said global oil production fell by 0.3 mbd in December, to 88.1 mbd, as non-OPEC supply decreased largely due to weather-related and technical outages. However, global supply is 2.1 mbd higher year-on-year, it added.
It now estimated demand on OPEC countries to average 29.9 mbd, around 0.4 mbd higher than previously, and that the cartel's effective spare capacity has nudged below 5 mbd for the first time in two years.
The IEA said OPEC crude oil supply at 29.58 mbd was running at the highest level since December 2008, when the producer group last agreed to cut output targets.
It estimated OPEC is now producing about 2.3 mbd above its notional 24.845 mbd output target.
The IEA said "the steady increase in prices over the past few months appears to have prompted a number of producers to increase supplies to capture higher revenues and/or to moderate price increases."
It singled out Saudi Arabia, Iraq, Kuwait, the UAE, Nigeria, Ecuador and Venezuela.
At its last meeting the 12-nation cartel decided to leave production quotas unchanged, with some nations like Iran and Venezuela urging higher prices to above 100 dollars a barrel to offset what they said were rising production costs.
But at the meeting last month in Quito OPEC heavyweight Saudi Arabia differed, saying between 70 and 80 dollars a barrel was a "fair price."