IEA says high oil prices pose real economic risk

"Recent price levels already pose a real economic risk - something of deep concern to producers and consumers alike," the International Energy Agency said in its latest monthly Oil Market Report.

Oil prices of $100 a barrel represent an 'oil burden' of five per cent of gross domestic product on the global economy, the IEA calculated, and said such levels in the past "have clearly been associated with economic problems.

"Ultimately, oil producers, financial investors and consumers (notably import-dependent developing countries) all suffer under such a scenario," said the report.

The IEA, the energy policy and monitoring arm of the 34-member Organisation for Economic Cooperation and Development, said growth in oil demand in 2010 was at one of the strongest rates in three decades, albeit from a low crisis level.

Oil demand grew by 3.2 per cent, an increase of 2.7 million barrels per day (mbd) year-on-year, it said.

Moreover, "such demand strength appears to be more related to a buoyant economic recovery than to the frigid weather conditions that prevailed in most of the northern hemisphere in late 2010."

Given that the pace of economic recovery is widely forecast to slow down in 2011, the IEA forecast growth in oil demand to slow to 1.6 per cent for a gain of 1.4 mbd year-on-year to 89.1 mbd.

The IEA said preliminary data showed China's oil demand raced ahead 15.1 per cent year-on-year in November, driven in large part by government-mandated closures of coal-fired plants to meet pollution targets that spurred use of small-scale electricity generators run on gasoil.

"Total demand has thus reached new historical highs (10.2 mbd), surpassing for the first time the symbolic 10 mbd threshold," said the IEA.