The IEA said further increases in prices at this stage of the economic cycle risked “derailing the global economy recovery” and suggested it would use “all tools that are at the disposal of IEA member countries” to stop such occurrences from taking place.
“The IEA governing board [expresses] serious concern that there are growing signs that the rise in oil prices since September is affecting the economic recovery by widening global imbalances, reducing household and business income, and placing upward pressure on inflation and interest rates”, the agency said in a statement.
“As global demand for oil increases seasonally from May to August, there is a clear, urgent need for additional supplies on a more competitive basis to be made available to refiners to prevent a further tightening of the market.”
The board noted that oil prices had seen a near-10% correction since 5 May but said prices remain at elevated levels. Capital Economics’ Julian Jessop, however, has suggested the near-term risks for oil and commodities in general are to the downside.
“The fundamentals for commodity prices are starting to weaken as the world economy slows, energy costs decline and the supply of agriculturals recovers from recent shocks,” he said.
Jessop does not believe that the end of QE2 will necessarily accelerate that drop, despite acknowledging that global commodity prices appear to have tracked rises in the Federal Reserve’s holdings of Treasuries over the past two years.
“Speculation over the impact of the end of QE2 could still provide another catalyst for further
declines, but more likely it will make little difference as, in our view, commodity prices will fall anyway,” he concluded.
