IEA warns oil prices will hit recovery

Sharply rising oil prices could prove a drag on global economic recovery this year, the International Energy Agency (IEA) warned yesterday.

With oil already topping the $100 per barrel mark as political instability in the Middle East adds to upwards pressure from rising commodity prices, the worldwide "oil burden" is set to hit 4.7 per cent of total economic output this year, up from 4.1 per cent in 2010.

"The combination of higher prices, emerging inflationary pressures and instability in the Middle East is not a healthy one," the IEA's monthly oil report, published yesterday, said.

"Under current assumptions for global GDP, oil price and oil demand, the global oil burden could rise to 4.7 per cent in 2011, getting close to levels that have coincided in the past with a marked economic slowdown."

The IEA also increased its forecast of global demand for oil in 2011 to 89.3 million barrels per day, its fifth increase in as many months, as economic growth recovers, particularly in emerging economies such as China.

Separately, the Organisation of Petroleum Exporting Countries producers' cartel also raised its global demand growth estimate, citing economic growth and cold weather.