PARIS (Reuters) - If oil prices rally too rapidly they could damage any fragile economic recovery, the head of the International Energy Agency (IEA) said on Wednesday, adding that last week’s OPEC decision to keep output steady was a good one.
Oil prices have more than doubled to around $67 a barrel since hitting a low of $32.40 in December last year, which was the weakest level in nearly five years.
“If the price moves too quickly relative to economic recovery, that will certainly hurt the economic recovery so we have to watch carefully,” IEA Executive Director Nobuo Tanaka told the Reuters Global Energy Summit.
Last week the Organization of the Petroleum Exporting Countries decided to keep output unchanged. Its leading member, Saudi Arabia, predicted the oil market could hit $75 a barrel this year and said the world economy had recovered sufficiently to cope.
“Our message to OPEC is they made a sound decision,” Tanaka said, but added it was not yet clear whether $75 was a level that would be damaging.
“That depends on many elements. If the economy is recovering quickly, maybe it does not make much difference, but if it moves quickly while the economy is not really recovering, the impact it will have will definitely be negative,” he said.
Even with steady OPEC output, he said the huge amount of oversupply in the market would drain away by the end of the year, provided the economy was beginning to heal.
“If recovery is happening, the market is getting tighter. If it does not happen, probably we will still have high inventories,” he said. “We are carefully saying that we don’t know ... Certainly we are saying there is some expectation of economic recovery, so we have to prepare.”
The IEA has been the most cautious of the major forecasters, predicting a drop in oil consumption of 2.56 million barrels per day this year compared with last year, compared to OPEC’s forecast of a fall of 1.57 million bpd.
Tanaka would not say whether the IEA would change its forecast in its next monthly report.
Overall, he said some demand had been permanently destroyed by the economic crisis and last year’s record oil price, which peaked at $147.27 a barrel in July.
He cited the closures of major car manufacturers and a shift toward more efficient vehicles.
“These are certainly irreversible trends ... especially in OECD countries,” he said. “We think that the very high prices of last year certainly destroyed some part of demand because there are many businesses changing their behavior.”
Tanaka added that global annual spend on the low-carbon sector had to quadruple from levels promised so far in economic recovery packages to more than $400 billion, to steer the world away from levels of greenhouse gas emissions commonly assumed to be dangerous.
“An additional 18,000 windmills should be built every year, 50 hydroplants, 20 nuclear power plants,” he said.
“This shows a huge energy revolution in infrastructure investment. This is very difficult to achieve if nothing happens, if governments will not take action. We strongly advise that the building sector is a very good target for spending money now.”
Tanaka estimated nearly half the required carbon emissions cuts needed by 2030 would come from energy efficiency measures.
Additional reporting by Gerard Wynn, Jane Merriman and Barbara Lewis; editing by Christopher Johnson