IEA says rising oil price risks derailing economic recovery

The IEA on Thursday revised it 2010 world oil demand forecast slightly higher, but warned that rising crude oil prices, if sustained, risk smothering the fragile economic recovery underway.

The Paris based agency said it expects global oil demand to rise to 86.2 million barrels a day next year, representing an upward revision of 140,000 barrels a day from its previous monthly oil market report in October. It said world crude consumption was on track to grow in the fourth quarter for the first time since mid-2008, mainly due to increasing emerging market demand.

Rising equity markets, a weak US dollar, which has lured investors to put their money into oil and gold futures and rising economic activity in China have been the main drivers of higher crude oil prices, which are up almost 80% this year at around $79 a barrel.

Major production cuts by OPEC the past year have been the biggest factor for higher prices, which have come despite a persistent overhang in oil inventory in industrialised nations since the start of the year.

But further gains in crude oil prices could bring trouble, the IEA said. “The recent price spike, if further extended, risks derailing the recovery. Not only that, but oil demand itself would rebound much more slowly were the price rally sustained into 2010,” it said in its report. The IEA serves as an energy advisor to industrialised nations such as the US and Germany.

Tags:  IEA, oil prices, report