IEA says "unstable" oil market depressing global growth

Dubai (Platts)--3May2004

Fears of OPEC supply cuts, political tensions in Venezuela and tight oil
stocks have driven up world crude oil and product prices to an extent that the
global economic recovery is being threatened, the International Energy Agency
(IEA) said in a report Monday. The May report by the West's energy watchdog
noted that higher oil prices since 1999, which it said were partly the result
of OPEC's supply management policies, contributed to the economic global
downturn of 2000-2001 and are "dampening the current cyclical upturn." The
report added that world GDP growth would have been "half a percentage higher"
had oil prices remained at mid-2001 levels. "Fears of OPEC supply cuts,
political tensions in Venezuela and tight stocks have driven up international
crude oil and product prices even further in recent weeks," said the report.
It noted that by March 2004, oil prices were well over $10/bbl higher than
three years before.

"Current market conditions are more unstable than normal, in part because of
geopolitical uncertainties and because tight product markets -- notably for
gasoline in the United States -- are reinforcing upward pressure on crude
prices," said the report entitled Analysis of the Impact of High Oil Prices on
the Global Economy. Higher oil prices are contributing to high unemployment
and exacerbating budget deficits in OECD and other oil-importing countries.
The report said results of a study carried out by the IEA with the OECD
Economics Department and with the help of the IMF's research department showed
that a sustained $10/bbl increase in oil prices from $25-$35 would result in
the OECD as a whole losing 0.4% of GDP in the first and second years of high
prices. Inflation would rise by half a percentage point and unemployment would
also increase. Of the OECD countries, whose oil imports at $260-bil in 2003
represented a 20% rise over 2001, the Euro-zone economies would suffer most.

This story was first published in Platts real-time news and market reporting
service Platts Global Alert
(http://www.platts.com/Oil/Real-Time%20Information/Global%20Alert/ ).

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