IEA: More Oil Needed Urgently ?

By JAMES HERRON

LONDON—The world oil market urgently needs extra supplies to prevent economic damage to importing countries that could derail the global recovery, the governing board of the International Energy Agency said.

The governing board called on oil producers to increase their oil output to "help avoid the negative global economic consequences which a further sharp market tightening could cause," the IEA said in a statement.

This latest salvo sets the IEA, which represents the interests of the major energy-consuming countries, in stark opposition to the Organization of Petroleum Exporting Countries, which maintains that the market is adequately supplied and doesn't need any of the extra four million barrels a day of oil production it holds in reserve.

OPEC will meet in early June to discuss its production ceiling, but officials at several member countries have said that a production increase is unlikely to be on the agenda. However, some officials from OPEC members in the Persian Gulf region said Thursday that unilateral production increases later in the summer are possible, even without formal OPEC agreement.

"We stand ready to work with producers," and would welcome any production increase, the IEA said.

The IEA has long warned of the dangers that high oil prices could pose to the world economy, although the statement from its governing board stands as the strongest warning yet.

Despite falling by about 10% since early May, international oil prices remain at elevated levels and the danger they pose to growth is increasing, the governing board said.

"Additional increases in prices at this stage of the economic cycle risk derailing the global economic recovery and are neither in the interest of producing nor of consuming countries," it said. "Oil-importing developing countries are most likely to be seriously affected by high oil prices, undermining their economic and social well-being."

The statement comes a day after U.S. oil futures closed above $100 a barrel for the first time in a week as a report from the Department of Energy showed an unexpected reduction in U.S. crude inventories. Many analysts say there is already evidence that high oil prices are having an effect on the U.S.

"U.S. oil demand data has taken a turn for the worse over the last couple of weeks as high gasoline prices have increasingly curbed demand," said analysts at Standard Chartered in a research note.

The volume of gasoline supplied to the domestic U.S. market over the past four weeks was 2.3% lower than the same period in 2010, suggesting reduced consumer spending, the analysts said. The year-on-year reduction in four-week supplies of diesel and other distillates was an even steeper 2.9%, reflecting lower industrial output and trade, they said.

The IEA said it wants to work in a constructive spirit with oil producers, but added that it is, "prepared to consider using all tools that are at the disposal of IEA member countries."

The IEA's most powerful tool is the ability to coordinate the release of publicly held oil stocks onto the market. This tool is, however, only available as an emergency response to a significant oil-supply disruption and the agency has said repeatedly that these stocks can't be used to manage prices.

—Benoit Faucon and Summer Said contributed to this article.

Write to James Herron at james.herron@dowjones.com

source: wjs.com
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