Oil prices stall recovery

High oil prices could stall economic recovery in some top economies, the International Energy Agency (IEA) warned Tuesday as it upgraded its forecast for global oil demand this year.

Higher prices together with tighter credit conditions "could stall Organization for Economic Cooperation and Development (OECD) economic recovery," the IEA said, referring to the 30 advanced economies covered by the OECD.

The OECD includes Britain, France, Germany, Japan and the US, and the IEA is its oil monitoring branch.

In its monthly oil market analysis, the IEA reported concerns that oil markets could be "overheated" with the oil price at around $85 a barrel.

The group said there were "questions over the sustainability of prices markedly higher" than the $70-80 a barrel level.

"Ultimately, things might turn messy for producers if $80-100 a barrel is merely seen as the new $60-80 a barrel," it added.

Oil prices fell in early trading in London after the IEA report was released, with New York's main contract, light sweet crude for delivery in May, dropping 64 cents to $83.70 a barrel.

Brent North Sea crude for May slid 40 cents to $84.37.

The IEA said oil demand would be 30,000 barrels a day higher and total 86.6 million barrels a day (mbd) this year owing to unexpectedly strong economic activity in the US, Asia and the Middle East.

But it reported preliminary data showing that oil product demand in Europe shrank by 3.4 percent in February on a 12-month comparison.

The data cast doubt "on the sustainability of Europe's petrochemical-led, manufacturing-based, export-oriented economic recovery," it said.

"In addition, the thorny and unsettled issue regarding Greece's potential rescue from default and eventual contagion to other southern European countries has introduced a further element of economic uncertainty," it added.

The IEA also noted a boost to the global refining industry, which has been in the doldrums for two years, and raised its forecast for oil supply from countries such as Canada and Russia that do not belong to the OPEC oil cartel.

Non-OPEC output was revised up by 220,000 barrels a day to 52.0 mbd for 2010 "reaffirming a more optimistic supply outlook amid elevated price levels."

The IEA said that global refining supplies rose in the first quarter of 2010 for the first time since 2008, indicating economic recovery.

It estimated refinery throughput at 72.5 mbd for the first quarter, 800,000 barrels a day higher than the first quarter of 2009.

"While China, India and Russia all posted record highs in February, European throughputs fell to their lowest level in 17 years," the IEA said.

US drivers face gasoline prices that may average close to $3 a gallon this summer, or 20% more compared with 2009, due to higher oil prices, the US Energy Information Administration forecast this week.

Source: Global Times