Paris: The West’s energy watchdog urged oil producers to boost supply to protect economic recovery, just weeks before an OPEC meeting which analysts say looks increasingly unlikely to increase production.
“The governing board urges action from producers that will help avoid the negative global economic consequences which a further sharp market tightening could cause, and welcomes commitments to increase supply,” the International Energy Agency (IEA) said in a statement on Thursday during a two-day governing board meeting.
Analysts said it was an unusual move for The Organisation for Economic Cooperation and Development’s energy arm. The Paris-based IEA has a policy not to comment on oil producers’ policies.
“It is quite rare that the IEA goes out directly to give suggestions to OPEC,” said Christin Tuxen, Danske Markets.
“It suggests the IEA is worried that we haven’t seen OPEC increasing supply... Libyan production has basically come to a halt and Saudi Arabia has been very slow to increase supply,” she added.
As global demand for oil increases seasonally from May to August, IEA members said there was a clear and urgent need for additional supplies to be made to refiners.
The IEA added it stood ready to work with producers as well as consumer countries which are not members.
“In this constructive spirit, we are prepared to consider using all tools that are at the disposal of IEA member countries,” it said.
Oil prices have rallied strongly since the beginning of the year on the unrest in North Africa and the Middle East, reaching near $130 per barrel. But they corrected sharply in early May to below $110 due to worries that high prices are destroying demand around the world.
However many analysts, including from big banks like Goldman Sachs, BarCap and Deutsche Bank, said they expected prices to return or exceed recent highs at the end of 2011 due to tightening supplies.
The Organization of the Petroleum Exporting Countries, which is responsible for 40% of global oil output will meet in Vienna on 8 June. It has held its official output targets steady even as prices surged, saying supply was sufficient.
In its last monthly report on 11 May, OPEC, whose members hold the world’s spare production cushion, said the sharp price drop on 5 and 6 May was no great surprise.
However, a delegate from one of OPEC’s Gulf countries earlier this month raised the possibility of increasing OPEC’s output targets to help lower prices as well as to bring official allocations back in to line with actual supply.
Some in OPEC, such as Iran and Venezuela, are likely to disagree. The attendance of Iranian President Mahmoud Ahmadinejad at the June meeting only strengthened analysts’ view the group was very unlikely to act.
The IEA said oil prices remained at high levels despite a near 10% correction since the start of the month.
This was driven by fundamentals, geopolitical uncertainty and future expectations, the statement said.
“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,” the statement said.