The International Energy Agency warns that further production cuts is an additional threat to the world economy.
Opec and energy agency split over oil price
The dramatic decline in oil prices over the past eight months has revived a public disagreement between OPEC and the International Energy Agency (IEA). The rift, over oil prices, between the groups representing oil exporters and consumers has resurfaced as signs emerge that oil markets are starting to respond to supply signals ahead of OPEC's March 15 meeting. On Friday, just a day after Nobuo Tanaka, the IEA executive director, said oil at US$40 a barrel until the end of this year would deliver a US$1 trillion (Dh3.67tn) stimulus to the ailing world economy, oil prices touched a five-week high of $46.30 on expectations of another OPEC production cut. BlueGold Capital Management, a London hedge fund, said oil could rise by 35 per cent to $60 a barrel if OPEC lowered quotas for a fourth time since September. Mr Tanaka said higher oil prices would slow global economic recovery and urged oil exporters to consider their "mutual interests" with consumers. "If prices were to go up again, there are significant implications for recovery because the global economy is still very vulnerable," Fatih Birol, the IEA chief economist, told Reuters. Promoting mutual interests was an idea both organisations embraced last June at a meeting of oil producers and consumers in Jeddah, which Saudi Arabia's government called less than a month before crude hit a record $147.27 a barrel. But last week, the groups' traditional differences over energy pricing regained prominence. "We all want to see the global economy back on its feet as quickly as possible," Abdalla el Badri, the OPEC secretary general, responded. "However, if the current low price environment persists, this short-term relief may not translate into long-term gain. "Oil prices need to be at levels to help sustain economic growth by supporting longer-term economic investments across the board." The dispute hinges on when and how oil prices could most beneficially rebound from their lowest levels since 2004. The IEA, representing the interests of 28 industrialised oil-consuming countries, wants economic recovery to do the job of boosting prices, with no further intervention from OPEC. "I think one of the ways [oil] demand will grow is to have a strong economy, and we should do everything in order to improve the economy," Mr Birol said. But Mr el Badri said the IEA could not reasonably urge the oil industry to invest in production capacity to avert a supply crunch while asking for prices to stay low. "OPEC remains committed to ensuring a stable, sound and sustainable oil industry, and upholding its investment plans when it makes business sense," he said. Yesterday, Rafael Ramirez, the Venezuelan oil minister, said he would support another cut, as he saw the market still oversupplied with crude. OPEC should seek to bolster oil prices to at least $70 a barrel, he said. Just a small OPEC cut this month could have a substantial psychological effect on the market, propelling prices higher, analysts said. Recently, crude has edged higher on evidence of OPEC compliance with the 4.2 million barrels of cuts announced so far, in contrast to the price declines that closely followed the announcements. According to Dalton Garis, an assistant professor of economics at the Petroleum Institute in Abu Dhabi, oil supply concerns drive the market when crude prices are rising, while demand concerns dominate when they are falling. In another sign that at least some oil producers are anticipating a price recovery, Brazil's state-controlled Petrobras said yesterday it expected the first oil output from its giant Tupi offshore field on May 1. The oil, to be pumped from under a salt deposit more than 6,000 metres below the Atlantic Ocean, is some of the world's most expensive and technically challenging to develop. Petrobras said last month it would invest $174 billion over the next five years in oil exploration and production. email@example.com