LONDON—The International Energy Agency warned that rising oil prices, which have been flirting with 18-month highs recently, could squeeze economic recovery in the U.S. and other industrialized nations.
The Paris-based agency said Tuesday there was plenty of oil around to sate increasing demand, but it said that higher crude prices could "stall [rich nations'] economic recovery or render it more 'oil-less' than we currently envisage."
U.S. oil prices have eased off the $87 a barrel level hit last week but are still above the $70-to-$80 range that has persisted for many months and gave a semblance of stability to global energy markets. U.S. oil prices, which have risen largely on economic optimism, traded Tuesday midday on Nymex at $83.10, down $1.24, a barrel.
The IEA, which tracks oil industry trends on behalf of its mostly industrialized-nation members, raised its 2010 global oil-demand forecast by 30,000 barrels a day—a slight amount—due to rising consumption in China and Saudi Arabia. World oil demand this year is seen growing 1.7 million barrels a day to 86.6 million barrels a day, which would be the highest level on record, according to IEA data.
Some analysts think that growth forecast is too optimistic, saying it is based heavily on government spending programs that will eventually be taken away—possibly starting later this year—and gives short shrift to the lingering debt problems that still weigh on energy consumption.
Such issues have contributed to oil inventories in the U.S. increasing in the past 10 straight weeks. Gasoline stocks in the U.S., the world's biggest energy consumer, also hover at a 17-year peak. Still, the prevailing oil market perception is that healthy economic activity in emerging markets like China will eventually run down the more-than-ample spare production capacity currently held in Organization of Petroleum Exporting Countries.
That view is padded by the popular belief that output from non-OPEC producers like Norway will register little growth after this year as aging oil fields yield fewer barrels. With that in mind, financial investors like hedge funds have remained active participants in the world oil trade this year. Hedge funds and others buy into investment tools such as exchange traded funds, or ETFs, which give them direct or indirect financial stakes in the movement of oil prices.
China consumes just half the amount of crude as the U.S. but is the single biggest growth driver, accounting for more than one-third of the annual increase in world oil consumption. The IEA said it expects China this year to burn about 9.1 million barrels a day, up 90,000 barrels a day from its previous forecast.
Yet, there is currently plenty of crude to meet that demand, at least over the next year or so. OPEC sits on the highest level of spare pumping capacity in a decade at more than six million barrels a day, with most of that held by Saudi Arabia.
U.S. stocks of unused oil stand well above five-year average levels, and analysts expect these to rise again when U.S. government data are released later this week.
Still, U.S. drivers face gasoline prices that may average close to $3 a gallon this summer, or 20% more than in 2009, due to the higher oil prices, the U.S. Energy Information Administration forecast this week. But the IEA said such a high gasoline price may lead to consumers driving fewer miles and, ultimately, perpetuate the high stockpiles of unused oil and gasoline in the U.S. That could act as a brake on further increases in oil prices.
Write to Spencer Swartz at spencer.swartz@dowjones.com