David Prosser: Mixed message lets Opec off the hook
Friday 04 February 2011
Outlook How serious is the oil price spike? Here's what the International Energy Agency's chief economist, Fatih Birol, said in an interview on Wednesday: "I don't see much destruction to the world economy from the current high oil prices". Phew. But hang on a moment. If prices do not come down, "an 'oil burden' could put a drag on the world economy," Richard Jones told a US Congressional hearing yesterday. Mr Jones is the deputy executive director of the IEA.
The contradictory message from the IEA is more than simply a curiosity – it is positively dangerous. It is true there are uncertainties about the oil market – not least the extent to which the current price spike is the result of a sustained increase in demand from a recovering global economy, as opposed to a more short-term speculative phenomenon. But it is equally clear that oil at $100 a barrel poses a threat to the recovery that we could all do without.
Pleas for an increase in supply are, however, largely falling on deaf ears at Opec, the oil producers' cartel. David Cameron's request last month for a higher production quota was politely ignored. In fact, there is some evidence that Saudi Arabia has been quietly raising supply in an effort to curb price rises, but in public, at least, Opec's line is it will not raise production.
Its position is strengthened by the mixed message now coming from the IEA. In the end, Opec will do what suits its members best, but the pursuit of this goal will be so much easier if the likes of the IEA can't manage a united front.
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