Oil near $100 still a threat to global economy says IEA

Wednesday, 6 June 2012 01:03 - - {{hitsCtrl.values.hits}}

Reuters: Oil prices near $100 a barrel are still a threat to a slowing global economy that is likely to consume less fuel than the International Energy Agency (IEA) had forecast, the IEA’s executive director said on Tuesday.

Brent crude this week dropped to a 16-month low below $96 a barrel before recovering to around $99, well off a peak of more than $128 in March but not low enough to stimulate, rather than hinder growth, Maria van der Hoeven said.

“Let’s be honest, we still confront a situation of near triple digit oil prices,” Van der Hoeven told reporters at a news conference in the Malaysian capital.

“This is placing a huge burden on budgets and that’s contributing to the risk of further economic slowdown.”

Increased supply from OPEC producers had helped ease the price, she said. The fall was important, she said, but producers and consumers could not yet claim victory in taming the oil price.

“I do hope the price will come down,” she told Reuters on the sidelines of an industry conference. “The market is well supplied, producers are supplying more than demand.”

OPEC output in May hit its highest levels since 2008, as Saudi Arabia kept production high despite the fall in prices.

Top oil producer Saudi Arabia pumped an extra 100,000 bpd in May, a Reuters survey of OPEC output found, taking output to 10.10 million bpd, the highest in decades.

Saudi Arabia has said it is targeting an oil price around $100 a barrel, but is unlikely to throttle back on output just yet.

More comfortable inventory levels in consuming countries were enough to offset any concerns that rising Saudi output left less spare capacity in global oil production to meet any surprise supply outages, Van der Hoeven said.

“Of course it’s a trade-off between spare capacity and more comfortable consumer stocks,” she told Reuters. “Producers have clearly made every effort to ensure there is sufficient supply to the market.”

A slowdown in economic activity in China, India and Europe could lead to global growth in fuel consumption coming in a lot weaker than the 800,000 barrels per day that the IEA has forecast for 2012, Van der Hoeven said.

“Oil demand growth could be markedly weaker than our base case assumption,” she said, declining to give a new estimate of global demand growth for the year ahead of the release of the IEA’s monthly oil market report next week.

Iran, inventories

It was too soon to say if there was enough oil on the market to meet the disruption to Iranian exports caused by US and European Union sanctions, she said.

The sanctions aim to cut Iran’s oil income and force the country to halt its nuclear programme, which the West suspects is aimed at developing weapons.

The IEA was ready to coordinate a release of oil from strategic stocks, she said, if a serious disruption in supplies made it necessary.

Leaders of the Group of Eight major economies raised the pressure on Iran last month by signalling their readiness to tap into emergency oil stockpiles quickly this summer if tougher new sanctions on Tehran threaten to strain supplies.

The G8 put the IEA – the West’s energy adviser responsible for coordinating reserves – on standby for action in the clearest sign yet that US President Barack Obama is winning support for tapping government-held oil stocks for the second time in two years.