IEA warns oil price will rise as demand grows

The oil price is set to surge later this year as rising global demand outstrips the increase in supply agreed by the Organisation of Petroleum Exporting Countries (OPEC), the West's energy watchdog warned yesterday.

The International Energy Agency said that signs of a declining demand for crude may be "greatly exaggerated". It said excess supply in the second quarter of 2000 would turn into a shortage of some 200,000 barrels a day in the second half of the year.

"The stage is set for a demand rebound later this year," the agency said.

"With OPEC production unchanged, that deficit would expand in the third and fourth quarters."

The 11 member nations of OPEC, the oil producers' cartel, agreed in March to release an extra 1.45 million barrels a day, an increase of 6 per cent. This effectively reversed cuts imposed in late 1998 when Brent crude was at around $9 and which sent the price surging back to nine-year highs of $31.

OPEC agreed to review its agreement in June but ministers have made it clear they do not intend to lift production further while stocks are still high. The IEA forecast that 1.2 million barrels a day would be added in the second quarter - a period of low demand.

Charles Dumas, director of Lombard Street Research International, said the key factor was strong demand in the United States and the economic recovery in Europe and Asia.

"Rapid demand growth, more than OPEC output, is driving up oil prices," Mr Dumas said.

Phil Flynn, vice-president of Alaron Trading Corp in Chicago, said: "It looks like we are pressing our luck with OPEC not increasing production. We are far from out of the woods on tight supplies this summer."

After the June OPEC meeting, the focus will shift to the "driving season" in the US - when millions of Americans take to the roads for the summer holidays.

The worry for the US authorities is that a sharp surge in the oil price could feed into inflation, triggering hikes in interest rates.

Concern earlier this year led Bill Richardson, the US energy secretary, to lobby OPEC into increasing supply and prevent the market becoming unstable.

According to reports, Mr Richardson will meet Ali Rodriguez, the president of OPEC and Luis Tellez, Mexico's energy minister, in California within days.