Rising oil prices to dampen growth prospects

Rising international oil prices, coupled with strong inflationary pressures, could dampen growth prospects in several emerging countries, including India, analysts said.

The Paris-based International Energy Agency (IEA) cautioned that rising oil prices, amid a growing demand, could adversely affect economic recovery in many industrialised countries which were recovering from the worst financial crisis witnessed in the last fifty years.

While international oil demand is expected to increase by 1.67 million barrels per day (mb/d) to an average of 86.60 mb/d this year, oil prices today flirted with the $70-80 band.

“Ultimately, things might turn messy for producers if $80-$100 per barrel is merely seen as the new $60-$80, stunting economic recovery while prompting non-oil and non-OPEC supply investment,” the IEA said in its monthly report.

 

“The return of economic growth and hence oil demand growth is fuelling the increase,” the report said, suggesting refineries around the world would process nearly 1 million bpd more oil in the second quarter that in the same period last year, with China and Asian countries raising output most.

In a separate report, teh Organization of the Petroleum Exporting Countries (Opec) said today that crude oil prices had moved up because of economic recovery. “In emerging markets, signs of inflation have become more evident,” it said, adding that “in India, food inflation has reached high levels and the government raised the reverse repurchase rate in March for the first time in almost two years.”

Opec said China and India, expanding at 9.5 per cent and 7.1 per cent respectively, would contribute significantly to global growth. It suggested rising price pressures presented a challenge to policy makers as they steered the economy’s recovery. “Expansionary fiscal and monetary policies are now being wound back gradually as the rebound gains traction.”

Oil usage in India, though, declined during January and February, overall “oil demand is forecast to grow by 135 tb/d in 2010 with industrial, transport, and agriculture sectors contributing the most,” according to Opec. “India’s auto sales increased sharply by 33% in February on a year-on-year basis, adding around 154 thousand vehicles,” the report argued.