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Oil price rally may lead to global slowdown: IEA

business Updated: Apr 12, 2011 22:48 IST

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Sky-high oil prices are beginning to dent oil demand growth, the International Energy Agency said on Tuesday, but added prices could ultimately moderate through a global economic slowdown.

Its view echoed a report from the International Monetary Fund on Monday which said oil prices and inflation were the key risks for to the global recovery.

That had contributed to a 3% drop in oil prices on Monday, but Brent crude rose a dollar on Tuesday to over $125 a barrel as some analysts said the IEA report was less negative than expected

“That leaves a less palatable route to price moderation — namely economic slow-down and weaker demand growth,” it said in its monthly report.

“There are real risks however that a sustained, $100 per barrel plus price environment will prove incompatible with the currently expected pace of economic recovery.”

The energy advisor to the Organisation for Economic Co-operation and Development (OECD) said data for January and February indicated high oil prices may have started to dent demand growth, while production is not expected to rise.

The IEA said tight supply was a further concern. Global oil output fell by around 0.7 million barrels per day (bpd) in March to 88.27 million bpd due to civil war in Libya.

“Hypothetically, if global supply were to chug along at March levels for the rest of 2011, OECD inventory could slip to near five-year lows by December,” it said.