PARIS – The global recovery will drive oil prices dangerously higher this year, possibly to the level where they could push the economy into a marked slowdown, the IEA warned Thursday.
The prospect of rising inflation, driven by oil and other higher commodity prices, coupled with political instability in the Middle East is an added concern, it said.
The IEA, the energy policy and monitoring arm of the Organisation for Economic Cooperation and Development, said the global oil bill was likely equal to 4.1 percent of total output in 2010 and would rise to 4.7 percent this year.
“Under current assumptions for global GDP, oil price and oil demand, the global oil burden could rise to 4.7 percent in 2011, getting close to levels that have coincided in the past with a marked economic slowdown,” the International Energy Agency said in its latest monthly Oil Market Report.
“Indeed, the combination of higher prices … emerging inflationary pressures and instability in the Middle East is not a healthy one,” it added.
The forecast was based on oil at $90 a barrel but Brent crude has rocketed over $100 recently as unrest in Egypt stokes concerns of possible disruption to supplies via the Suez Canal and wider fears over the Middle East.
The IEA had warned last month that sustained oil prices at $100 posed a real risk to the world economy and said Thursday that demand would still grow even if the pace of the global recovery eases overall.
After taking into account the latest economic forecasts from the International Monetary Fund, the IEA said global oil product demand should reach 89.3 million barrels per day (mbd), an increase of 1.5 mbd from 2010.
Separately, the OPEC oil cartel raised its 2011 global oil demand growth estimate to 1.62 percent from the previously estimated gain of 1.23 percent, to 87.74 mpd, citing bitter winter and continued economic expansion, especially in the United States and China.
OPEC, led by oil kingpin Saudi Arabia, supplies 40 percent of the world’s oil.
The IEA noted that Chinese demand has continued to rise strongly, jumping 17.7 percent year-on-year in December to 10.4 mbd, another record.
Efforts by the Chinese government to cool its runaway economy made forecasting difficult but the IEA said it expected Chinese oil demand to rise by 6.0 percent in 2011 to 9.96 mbd on average.
The IEA raised its demand growth forecast for OECD countries by 90,000 barrels per day (bpd) to give a total 46 mbd in 2011, representing an overall decline of 0.2 percent as the developed countries cut down fossil fuel use.
For the non-OECD countries, the forecast was increased by 60,000 bpd to give 43.2 mbd, representing an overall gain of 3.7 percent for the year.
Global oil supply rose 0.5 mbd in January to 88.5 mbd, the IEA said, with OPEC supply alone hitting a two-year high at 29.85 mbd.
Excluding Iraq, which is not subject to OPEC quotas, production rose to 27.2 mbd, against the agreed level of 24.845 mbd set in December 2008.
Increases by the UAE, Angola, Libya and Venezuela partially offset slightly lower output from Iran and Nigeria.
With debate rising over speculation driving rising commodity prices, including for oil, the IAE noted that the oil market “tightened significantly in 2010.”
It warned that US proposals to limit speculative positions “will severely constrain trading activity which would lead to increased, rather than reduced, volatility.”