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Costly oil may hit growth in India and China: IEA

Costly oil may hit growth in India and China: IEA
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First Published: Tue, Jun 21 2011. 09 58 PM IST
Updated: Tue, Jun 21 2011. 09 59 PM IST
Singapore: High crude prices may derail growth in China and India, the two economies that helped the world overcome financial crisis, the International Energy Agency (IEA) said on Tuesday.
Asian countries, led by China and India, are tightening monetary policies to battle a surge in inflation, partly caused by high oil prices.
Brent crude has peaked at just above $127 a barrel so far this year, a level which analysts have said could hurt oil demand.
“High oil prices are a significant risk to derailing the economic recovery not only in the OECD (Organisation for Economic Co-operation and Development) countries, but also in China and India,” the energy watchdog’s chief economist Fatih Birol said. “China and India are two most important economies which helped us get out of the economic crisis. If they go for tightening of monetary policies, this may lead to a slowdown in their economies which is bad news for all of us.”
Birol did not elaborate on the oil price that would derail growth.
Oil prices will stay above $100 a barrel in the next year as supply worries outweigh concerns about flagging global growth, a Reuters survey of oil industry officials, executives and traders showed last week.
Eight of 20 participants said they saw oil trading between $110 and $130 a barrel in June 2012, eight saw prices between $90 and $100 and three saw prices above $130. Only one respondent saw prices between $70 and $90 per barrel.
“If you look at the average over the year, oil prices are still significantly higher than the average for 2008,” Birol said. “I’m also looking at the next couple of quarters and we expect there will be strong demand growth and sluggish non-Opec (Organization of the Petroleum Exporting Countries) production.”
Higher oil prices will also lead to a rise in fuel subsidies despite efforts by China and Iran to reduce them, he said.
The West’s energy watchdog raised its five-year global oil demand forecast by an average of 700,000 barrels per day (bpd), compared with the previous medium term report issued in December on growth from non-OECD countries. China alone accounts for more than 40% of the increase.
Global production may reach 96 million bpd in 2035 with the Middle East and North Africa accounting for 90% of this, according to IEA.
The world will need more oil production from Opec, Canada and also non-gas liquids as many oil fields outside Opec are maturing, Birol said.
“The era of cheap oil is over,” Birol said.”Investments in the Middle East and North Africa may be deferred and it could be difficult to send in workers because of unrest in the region.”
By 2035, IEA expects global energy use to grow by 36% with non-OECD countries—led by China, where demand is expected to surge by 75% by then —accounting for almost all of the increase.
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First Published: Tue, Jun 21 2011. 09 58 PM IST
More Topics: IEA | India | China | Asia | Oil |