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IEA, OPEC differ on economic threats of rising oil prices

By on March 22, 2011

THE International Energy Agency (IEA) and Organisation of Petroleum Exporting countries (OPEC) have expressed divergent views on the current resurgence of oil prices.

While IEA believed that the there is going to be a “marked slowdown” in the global economy unless oil prices fall from current high levels as post-recession demand picks up, Nigeria, a member of OPEC, did not consider the current level of oil prices damaging to the world economy.

Oil prices surged above $110 a barrel last month after political unrest in Libya more than halved the North African producer’s oil output. Top oil exporter Saudi Arabia has promised to meet any supply gap but prices have remained close to the two-and-a-half-year high hit last month.

Last week, Brent crude closed at $113.93 a barrel, while U.S. crude closed at $101.42.

“If prices remain at current levels or rise further, by September 2011, if not before, the global economy may feature a marked slowdown,” the IEA said in its monthly oil report.

IEA added: “This effect would be exacerbated by expected fiscal tightening if inflationary pressures become entrenched.”

But, Minister of Petroleum Resources, Deziani Allison-Madueke, said recently that “none of the OPEC countries has considered it (the current oil price) damaging. Over the next six months, we will all be watching the price and supply situation very closely,” Allison-Madueke said.

Also, Iranian Oil Minister, Massoud Mirkazemi, said some members of OPEC saw no need for producers to act even if prices went to $120 a barrel. The comments will be of concern for consumer countries worried that rising commodity costs are igniting inflation and jeopardising economic recovery.

“None of the OPEC members found $100 concerning or irrational. Some of the OPEC members see no need for an emergency meeting even with prices at $110 or $120,” Mirkazemi, OPEC president for 2011, said during a news conference.

“None of the members has asked for an emergency meeting and I think for a long time there would be no such request,” Mirkazemi said.

While admitting that estimating the impact is “notoriously difficult,” the IEA suggested that a 10 percent increase in the price of oil could cut global growth by between 0.2 and 0.7 percentage points after one year, and possibly by twice as much in the second year.

Turning to the violent unrest in OPEC member Libya, the Paris-based agency said oil production, and certainly exports, had practically ground to a halt there.

“What is becoming clearer is that the country’s oil exports of some 1.3 million barrels per day will remain off the market for a considerable time due to both war inflicted damage and international sanctions,” the IEA said.

The IEA report was completed with the full scale of the devastation wreaked by the earthquakes and tsunami in Japan yet to be measured.

With its nuclear capacity wrecked by explosions at reactors in the wake of the natural disasters, the IEA predicted that Japan will need a combination of extra oil and gas to make up the shortfall.

However, the IEA admitted that “there is no way of knowing yet how Japanese oil demand will evolve short-term”.

In its report, the IEA estimated that Japanese oil consumption might increase by 200,000 barrels per day if the entire electricity output that usually comes from the country’s 11 nuclear power plants was replaced by oil-fuelled production.

Source : Guardian