Higher petroleum prices would hurt economic growth around the world next year, the International Energy Agency said.
The agency said global demand for oil would be stronger than expected for the rest of this year. But it forecast that high prices and the slowing world economy would lead to an overall drop in oil consumption in 2005 and restrain consumption from China, which has been the driving force behind the demand for oil this year.
“The current oil price rally has trimmed prevalent assumptions of global economic growth for 2005, while at the same time galvanising energy-saving efforts and fuel switching away from oil in China and other non-OECD Asian economies,” the report said, referring to the Organisation for Economic Cooperation and Development.
The IEA report came as crude oil futures retreated from record levels of more than $US54 a barrel in early Asian trade, falling to $US52.35 as traders monitored developments in strike-hit Nigeria and recovery efforts in the Gulf of Mexico.
While oil prices are more than 80 per cent higher than a year ago, they are still more than $US27 below the peak inflation-adjusted price reached in 1981.
Still, many market observers say prices are likely to continue rising due to supply concerns.
In its monthly forecast the IEA raised its estimates for overall oil demand in 2004 by 240,000 barrels a day to 82.4 million barrels. That would put growth in demand for oil this year at 3.4 per cent, or 2.7 million barrels a day above last year’s consumption, the agency said.
Chinese demand for oil is expected to rise 14.6 per cent this year, to 6.3 million barrels a day, after growing 11 per cent in 2003. Some government-imposed energy-saving measures are starting to take hold, the IEA reported. That should slow the pace of growth in oil demand to 5.6 per cent in 2005.
Higher prices also could crimp global oil consumption next year. The agency trimmed its outlook for growth in demand for 2005 by 70,000 barrels a day, to 83.85 million barrels. The agency said the cut “reflects expectations of slower economic growth and the impact of high oil prices on demand and the economy”.
Rising oil prices are already rattling investors’ confidence in the health of the global economy. The ZEW Centre for European Economic Research said on Tuesday that its index of German investor confidence had dropped to the lowest level in 16 months in October.
A combination of strong demand, high political uncertainty and tight production capacity has pushed oil prices up by 65 per cent this year. While most producers are pumping at a record pace to meet demand, disruptions from sources such as Nigeria or the Gulf of Mexico – hit by a hurricane a month ago – have kept oil markets volatile.
