LONDON (Reuters) - Oil around the current level of close to $120 a barrel risks tipping the world economy into a double dip recession, the International Energy Agency’s chief economist said on Wednesday.
He also said the Paris-based consumer watchdog was monitoring the supply-demand balance every day to judge whether it was necessary to release strategic stocks.
“If you don’t see any softening of the prices, there is a risk of derailing the economy, of a double-dip,” Birol told the Reuters Global Energy and Climate Change Summit.
“We all know what happened in 2008. Are we going to see the same movie?”
Oil prices vaulted to a high above $127 for Brent in April this year following the loss of almost all Libya’s roughly 1.6 million barrels per day (bpd) of production.
The market has yet to match the 2008 record of more than $147, but Birol noted the average for this year was already higher than in 2008 and the world economy was more fragile.
“If you look at the average of 2008, it was around $90, which is much lower than today. The bad news is that even if prices averaged $100, the oil import bill of the major importing nations would be at the same level of 2008.”
An average of $100 a barrel would mean fuel import bills cost the equivalent of 2.3 percent of gross domestic product and at current levels, the cost was closer to 3 percent, Birol said.
The world’s leading oil exporter Saudi Arabia has pledged to deliver as much oil as the world needed regardless of OPEC’s failure at talks in Vienna last week to reach a new supply deal.
Birol said extra Saudi crude would be “very welcome” but might not be enough to make up for the loss of high quality, light sweet Libyan oil.
He did not expect Libyan production to return to the market this year and the prolonged outage could require the release of strategic reserves held by the IEA’s 28 members.
“We are assessing the situation every single day in terms of the supply-demand balance,” Birol said. “We are ready at any time.”
The IEA has used its stocks twice in its history. It released oil at the time of the first Gulf War in 1991 and in 2005 after Hurricane Katrina ripped through refineries in the U.S. Gulf Coast.
Its mandate says emergency stocks should only be used in the event of severe supply disruption.
Birol argued prolonged Libyan disruption was potentially a severe disruption and the release of stocks to compensate for the lost, high quality oil, would not constitute a change of the mandate agreed when the IEA was founded in 1974.
The IEA issued a thinly veiled threat before OPEC met last week, saying it would use “all the tools” in its armory if OPEC did not increase output.
OPEC’s Secretary General Abdullah al-Badri hit back, telling Reuters Global Energy and Climate Change Summit the IEA should not interfere.
“Strategic reserves should be kept for their purpose and not used as a weapon against OPEC,” Badri said.
Birol insisted the IEA and the producers’ club were “definitely friends.”
“There are times when we need to close the door and when we need to open the door,” he said. “We give our results and we are happy to get reactions.”
Editing by William Hardy