Paris 18 April 2010

Oil prices at $85 per barrel could endanger the fragile global economic recovery, a senior analyst at the International Energy Agency (IEA) said on Friday. The Paris-based adviser to industrialized economies warned at the end of 2009 that oil prices above $70-80 a barrel could be risky for global economic recovery. "The question we should ask ourselves is whether oil prices are getting to an uncomfortable level that could jeopardize the economic recovery and there is ground to argue that," Edouardo Lopez, senior oil demand analyst at the IEA, told Reuters.

Oil prices have nearly tripled from the lows near $30 a barrel seen at the end of 2008 to around $85 as investors eye signs of an economic recovery, which is boosting oil demand.

The agency said in its monthly Oil Market Report that world oil demand would reach an average of 86.60 million barrels per day (bpd) this year, a record high up from 84.93 million in 2009 as economies recover from the recession.

Growth in demand mainly came from North America, the Pacific, Asia and the Middle East but not from Europe, with the bloc's economy still at pre-recession levels.

"The evidence of our recovery, as far as the OECD (Organization for Economic Cooperation and Development) is concerned, is still somewhat patchy, especially in Europe," Lopez said in a telephone interview.

Lopez said the reason oil prices were raising sharply was because of the output cuts carried out by OPEC to put a floor on the price fall during the recession. OPEC has since kept its output policy stable for more than a year, but since mid-2009 many countries have informally been raising supply alongside the recovery in oil prices.

"It's up to OPEC to decide whether they like this price or not because they have a fundamental level of production. Let's not forget for one second that the rebound in prices is related to the fact that OPEC cut its production massively when the crisis erupted," he added.

OPEC, which is scheduled to meet in October, said earlier this week it would consider raising crude output if oil rose to around $90 to $95 a barrel, above the $70-$80 mark that OPEC members described as fair for both producers and consumers.

For Lopez a sudden rise in prices was not in the interest of both consumers and producers, partly because producing countries subsidise petrol prices to protect populations from sharp rises.

Ends --