Chinese and US demand to keep oil prices high - IEA

Cold weather across the northern hemisphere and robust economic growth in the US and China has led to a "surge" in demand for oil, the International Energy Agency said yesterday.

The intergovernmental body dismissed the idea that speculators were behind the record highs continuing in the price of crude oil, pointing to tight supply and booming demand as the reason. It said a broad range of commodities was at record or near-record highs, indicating "global economic growth as the primary driver behind high oil prices".

The IEA warned that the situation may require co-ordinated action by governments. In its monthly Oil Market Report, the organisation said: "If supply continues to struggle to keep up, more policy attention may come to be directed at oil demand intensity in our economies and alternatives."

The IEA raised its global demand forecast for 2005 by 300,000 barrels per day (bpd) to 84.3 million. Annual growth now averages 1.8 million bpd, up 290,000 bpd. Not only has there been cold weather this winter in Europe and North America but north-east Asia has also been cold, particularly Japan.

The IEA has revised its estimate for 2005 world demand growth up by 500,000 bpd in the past three months. It said yesterday that demand for the second quarter "continues to look robust". World oil supply did increase in February, to match demand at 84.3 million bpd, up 885,000 bpd.

The report said: "The reality is that oil consumption has caught up with installed crude and refining capacity. Refiners are already competing to secure crude for the second quarter to rebuild depleted distillate stocks and to meet summer driving season and air conditioning demand. Capacity limitations are once more being tested by strong demand growth, keeping prices high."

The grim prognosis from the IEA reversed a fall in crude oil prices earlier yesterday. By late afternoon, prices rose back above $54. US light crude rose 89 cents to end at $54.43 a barrel after tumbling more than $1.20 on Thursday. Brent crude in London closed up 44 cents at $53.10 yesterday, having set a record $54.30 on Wednesday.

The acting secretary general of the Organisation of Petroleum Exporting Countries, Adnan Shibab-Eldin, recently said oil could hit $80 a barrel within two years. And this week the US government raised its forecast for the price by 7.5 per cent for the benchmark US crude to $48.95.