Reuters cited Mr Birol chief economist of International Energy Agency as saying that oil around the current level of close to USD 120 per barrel risks tipping the world economy into a double dip recession.
Mr Birol said that 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. We all know what happened in 2008. Are we going to see the same movie?
He said that oil prices vaulted to a high above USD 127 for Brent in April this year following the loss of almost all Libya's roughly 1.6 million barrels per day of production. The market has yet to match the 2008 record of more than USD 147 but the average for this year was already higher than in 2008 and the world economy was more fragile.
Mr Birol said that if you look at the average of 2008, it was around USD 90, which is much lower than today. The bad news is that even if prices averaged USD 100, the oil import bill of the major importing nations would be at the same level of 2008. An average of USD 100 per barrel would mean fuel import bills cost the equivalent of 2.3% of gross domestic product and at current levels the cost was closer to 3%.
He said that 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. 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 US Gulf Coast. Its mandate says emergency stocks should only be used in the event of severe supply disruption.
Mr 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 armoury if OPEC did not increase output.
(Sourced from Reuters)
