In a surprise move, the International Energy Agency (IEA) today called on the Organisation of Petroleum Exporting Countries (OPEC) to increase production in an effort to bolster the fragile global economic recovery.
Following a quarterly meeting of the agency’s governing body, the IEA issued a detailed statement warning that rising oil prices are threatening the stability of the global economy and that producers should move quickly to increase supply.
“The IEA Governing Board expressed serious concern that there are growing signs that the rise in oil prices since September is affecting the economic recovery by widening global imbalances, reducing household and business income, and placing upward pressure on inflation and interest rates,” the statement read.
“As global demand for oil increases seasonally from May to August, there is a clear and urgent need for additional supplies on a more competitive basis to be made available to refiners to prevent a further tightening of the market.”
The statement went on to urge producers to act now to “help avoid the negative global economic consequences which a further sharp market tightening could cause”, adding that the agency is willing to use “all tools at the disposal of IEA member countries” to help bolster supplies.
Oil prices have fallen around 10 per cent since the start of May, but rose for the second day in a row this morning to $112.96 for a barrel of Brent Crude.
Analysts remain concerned that ongoing instability in the Middle East, coupled with rising global demand for oil, means that prices will remain elevated and volatile for the foreseeable future.
The statement is obviously designed to increase pressure on OPEC ahead of its annual summit early next month. The cartel has hinted in the past that it may step up production in response to rising prices, but some member countries have expressed reluctance to increase supplies, arguing that the current high prices are the result of speculators and fears over political instability rather than actual supply levels.
However, the IEA statement contests this view, insisting that oil prices remain at elevated levels as a result of “market fundamentals, geopolitical uncertainty and future expectations”.
The use of the phrase “market fundamentals” could be interpreted as a hint at growing concerns among some officials at the IEA that oil supplies are peaking and producers will struggle to ensure that supplies continue to respond to demand.
The meeting comes on the same day as the UK Industry Taskforce on Peak Oil and Energy Security, a business group backed by companies including Arup, Kingfisher, SSE, Solarcentury and Richard Branson’s Virgin Group, will meet with Energy and Climate Change Secretary Chris Huhne to discuss concerns about the threat posed by peak oil.
