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Oil prices are 'overheated' - IEA
International Energy Agency says crude oil costs have run ahead of fragile economic recovery
guardian.co.uk, Tuesday 13 April 2010 18.05 BST
Article history
High oil prices, duty rises and a weak pound have pushed up petrol prices to new records. Photograph: Graham Turner
Oil prices are "overheated" following crude's recent run to 18-month highs and could fall by almost a fifth, the International Energy Agency (IEA) has warned.
The forecast will please motorists in Britain, who are having to pay record prices at the pump. Last week, petrol hit an all-time high of 120p per litre. The rise follows the introduction of a 1p increase in fuel duty at the beginning of the month, though the chancellor has delayed further increases until later in the year.
The Conservative party election manifesto today promised to consult over plans to introduce a "fair fuel stabiliser". This would cut duty when oil prices rise, and vice versa, to reduce volatility.
Last week oil prices hit $87 a barrel – the dearest since October 2008 – but the IEA said crude costs have run ahead of a fragile economic recovery. While some recovery in demand has supported prices at around $70-$80 a barrel, the IEA raised questions over "the sustainability of prices markedly higher than those levels".
The watchdog said that increased supply as new projects come on stream, particularly in countries such as Russia and Brazil, is more than enough to offset higher demand as economies around the world recover from the downturn.
The IEA's warning also raises the spectre of a repeat of the market-driven bubble that helped push crude to a record $147 a barrel in 2008, saying "recent exuberance … may have played a role".
The spike could also choke off recovery in developed Organisation for Economic Co-operation and Development (OECD) countries, it added.
The IEA said a manufacturing-led, export-based recovery in Europe "appears to be ebbing", with higher prices potentially punishing developed economies.
The report warned: "Any potential renewed surge in prices … plus tighter credit than two years ago, could stall OECD economic recovery or render it more 'oil-less' than we currently envisage."
The IEA said demand in Europe was particularly weak, downgrading its forecast for this year by 70,000 barrels of oil per day (BOPD). This was offset by an upward revision of demand from the rest of the developed world.
Analysts at Barclays Capital said this showed Europe was "de-coupling" from the recovery in the rest of the OECD, "although we would argue for a more aggressive bearish view on Europe".
In total, the IEA revised upwards its oil demand forecast for 2010, by 30,000 BOPD to 86.6m BOPD, back above pre-recession levels.
International Energy Agency says crude oil costs have run ahead of fragile economic recovery
guardian.co.uk, Tuesday 13 April 2010 18.05 BST
Article history
High oil prices, duty rises and a weak pound have pushed up petrol prices to new records. Photograph: Graham Turner
Oil prices are "overheated" following crude's recent run to 18-month highs and could fall by almost a fifth, the International Energy Agency (IEA) has warned.
The forecast will please motorists in Britain, who are having to pay record prices at the pump. Last week, petrol hit an all-time high of 120p per litre. The rise follows the introduction of a 1p increase in fuel duty at the beginning of the month, though the chancellor has delayed further increases until later in the year.
The Conservative party election manifesto today promised to consult over plans to introduce a "fair fuel stabiliser". This would cut duty when oil prices rise, and vice versa, to reduce volatility.
Last week oil prices hit $87 a barrel – the dearest since October 2008 – but the IEA said crude costs have run ahead of a fragile economic recovery. While some recovery in demand has supported prices at around $70-$80 a barrel, the IEA raised questions over "the sustainability of prices markedly higher than those levels".
The watchdog said that increased supply as new projects come on stream, particularly in countries such as Russia and Brazil, is more than enough to offset higher demand as economies around the world recover from the downturn.
The IEA's warning also raises the spectre of a repeat of the market-driven bubble that helped push crude to a record $147 a barrel in 2008, saying "recent exuberance … may have played a role".
The spike could also choke off recovery in developed Organisation for Economic Co-operation and Development (OECD) countries, it added.
The IEA said a manufacturing-led, export-based recovery in Europe "appears to be ebbing", with higher prices potentially punishing developed economies.
The report warned: "Any potential renewed surge in prices … plus tighter credit than two years ago, could stall OECD economic recovery or render it more 'oil-less' than we currently envisage."
The IEA said demand in Europe was particularly weak, downgrading its forecast for this year by 70,000 barrels of oil per day (BOPD). This was offset by an upward revision of demand from the rest of the developed world.
Analysts at Barclays Capital said this showed Europe was "de-coupling" from the recovery in the rest of the OECD, "although we would argue for a more aggressive bearish view on Europe".
In total, the IEA revised upwards its oil demand forecast for 2010, by 30,000 BOPD to 86.6m BOPD, back above pre-recession levels.
