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High oil prices nothing to do with supply and demand, IEA head says

Record high oil prices cannot be explained by today's supply and demand levels, says the head of the International Energy Agency.

Record high oil prices cannot be explained by today's supply and demand levels, says the head of the International Energy Agency (IEA).

"The strange thing is that though demand is sufficiently supplied, the price is high, and well, this might have to do with expectations," said Maria van der Hoeven, the executive director of the IEA.

"It might also have to do with a risk premium. But we cannot say for sure that there is a direct relation between price and what some say is speculation."

Oil advanced to the highest level in four months in New York yesterday as a surprise drop in US crude inventories countered concern that the global economic recovery may falter and curb fuel demand. West Texas Intermediate (WTI) for delivery next month was at US$94.76 a barrel, up 52 cents, in electronic trading on the New York Mercantile Exchange at midday London time.

The contract climbed 96 cents to $94.24 the day before, the highest close since September 18.

Brent for March settlement on the London-based ICE Futures Europe exchange gained 64 cents to $110.32 a barrel.

The European benchmark's premium to WTI earlier narrowed to $14.98, the smallest gap since July 25.

The IEA, which represents the interests of 26 industrialised consumer countries from its headquarters in Paris, has been vocal in the past about the threat of a sustained high oil price to the world's economic recovery.

"What we have seen is a reduction in demand," said Ms van der Hoeven in an interview in Abu Dhabi at the World Future Energy Summit.

"We've also seen a slowdown in the Chinese economy, and we've also seen a very, very slow recovery in other economies." But the oil price is not all to blame, she added.

"That would be much too simple," she said.

"There are many other things that contribute to the economy. For instance when we look at the European situation, people forget that the real cause of the problems was the financial crisis, and the cause of the financial crisis was the mortgage crisis in the United States."

International sanctions on Iran have taken more than 1 million barrels of crude off the market, but "sky-high" production in the US, a recovery in post-war Libya and Saudi Arabia's unmatched capacity for increasing production when needed have kept the market sufficiently supplied, she added.

"The buyers had an opportunity from the beginning to be prepared," said Ms van der Hoeven. "The sanctions have been effective where they should be effective."



* with agencies

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