IEA warns of oil price shock on global economy
London, March 15, 2011
High oil prices are beginning to cripple the global economic recovery and will lead to a reduction in oil demand later this year, the West's energy watchdog said on Tuesday.
The International Energy Agency (IEA) also said the global oil supply rose to an all-time high in February as output by the Organisation of Petroleum Exporting Countries (Opec) fell only slightly after its members stepped in to compensate for loss of Libyan oil output.
But it added that as a result Opec's spare capacity has fallen to its lowest level since late 2008, thus reducing its ability to cushion any new supply shock.
'Empirically, past oil price shocks have shown a discernible effect on GDP. Supply shocks tend to be felt just a few months thereafter, while demand shocks usually have an impact roughly a year later,' the IEA said in its monthly report.
If oil prices remain above $100 a barrel throughout this year it will have a negative impact on the global recovery, the head of the IEA, which advises 28 industrialised countries on energy policy, told Reuters.
'If prices move higher, it will certainly create more problems', Nobuo Tanaka said adding that the agency is ready to release its strategic crude oil stockpiles if needed in the aftermath of the Japanese earthquake and tsunami.-Reuters