Shanghai: High oil prices have hurt demand in top consumers China and the United States, and Opec needs to raise output around June to stem further price rises, the International Energy Agency’s executive director said on Wednesday.
The IEA has already warned that high oil prices are threatening to slow global economic expansion, which would in turn erode the pace of growth in fuel demand.
A sustained price of $100 or more for the rest of 2011 would cause demand destruction similar to 2008, Tanaka told Reuters in an interview. Then, fuel demand fell as the world economy reeled from the impact of the global financial crisis.
“There is a six-month lag for the world economy to fully show the impact of high oil prices. But if they stay at current levels, the consequences will be bad,” he said.
Earlier this week, Tanaka described signs of the slowdown in demand as “alarming”.
Oil prices have risen to their highest levels since 2008 this year. Brent touched $127 a barrel earlier in April, and US crude rose above $113, on worries of unrest in the Middle East and North Africa.
Investors and speculators would need to heed the growing chorus of warnings and “not repeat the same mistake made in 2008”, when the price of crude was driven to over $147 a barrel, Tanaka said.
Global demand fell by 500,000 barrels per day (bpd) in 2008 and 1.3 million bpd in 2009, according to the IEA.
Oil markets were well supplied for now, but producer group Opec would need to boost output in June or July as European refineries come back online after seasonal maintenance and as Japan begins reconstruction in the wake of its devastating earthquake and tsunami last month, Tanaka said.
“As Saudi oil minister Ali al-Naimi has always said: Saudi will fill the gap,” Tanaka said. “So please, Opec countries need to make sure this happens when demand comes back.”
Opec next meets in June to discuss supply policy, but has to date taken no coordinated action to boost supply to cool prices.
Top oil exporter Saudi Arabia said this week it cut supply in March from February as the market was oversupplied. The kingdom had ramped up output in February to plug the gap in supplies left by Libya, where civil war disrupted exports.
Opec ministers have joined the growing chorus this week of those warning that costly oil could place a major strain on consumer countries with fragile economies.
China’s measures to cool growth and slow inflation had contributed to a slowdown in demand there, Tanaka said, but high prices had played their part. Year-on-year, Chinese oil demand growth slowed to 9.6% in February from 16% in December, Tanaka said.
“We have already observed slower oil demand growth rates in China. Clearly, the speed of growth is declining,” Tanaka told Reuters.
“Part of it would be monetary tightening but high oil prices also play a big role. The government has been deregulating the gasoline prices each month and certainly, that has eaten up some demand growth.”
The question for oil markets is whether Chinese demand growth, which has driven global oil consumption growth for a decade, is slowing faster than expected.
The rate of Chinese annual oil demand growth was expected to slow to between 5-7% in 2011, according to a Reuters poll, down from a 12% increase in 2010.
That would still have meant annual growth of 450,000 to 550,000 barrels per day, or around a third of the IEA’s global demand growth forecast of 1.44 million bpd for 2011.
Implied oil demand in March was up 11% on the year, according to Reuters’ calculations, ahead of forecast growth.
Global gas demand would likely see a big boost in the coming years after Japan’s earthquake and tsunami damaged nuclear plants there, Tanaka said. Some governments would shy away from building new reactors and old nuclear plants could get retired earlier than expected.
That would erode the glut in gas supplies in global markets earlier than previously expected, Tanaka said.
“Governments will increase the use of gas for power generation. The current glut in gas supplies will evaporate very quickly,” he said.
“Gas demand could be much, much tighter in the future,” he said, adding that the agency was in the process of revising its gas demand outlook.
Tanaka has previously said the supply glut in global gas markets could take until the end of the decade to clear.