IEA warns oil inflation not yet reaching consumers

The International Energy Agency on Thursday warned that the world’s economy has not yet seen the full impact of rising crude oil prices.

It said that consumers should be ready for further rises in the cost of energy because the economy is currently still reacting to last year’s oil price hikes. It said further that price increases so far have had only a limited effect on demand, so that the global economy has not yet seen a reversal in growth in response to higher prices.

The IEA recommended that oil stockpiles be increased beyond their current levels in order to calm market worries about security, production delays, and a continued strong demand for oil and oil products.

The IEA’s report says that oil inventories held by member nations of the Organization for Economic Co-operation and Development stood at 1.32 million barrels per day in the second quarter, above the five-year average of 900,000 barrels per day. In the IEA’s view, however, the market has made it clear that inventories must rise further until it becomes clear exactly where demands will be.

IEA estimates of demand growth remain the same at 1.6 million barrels per day this year and 1.78 million barrels per day in 2006, an estimate that figures in an easing of demand in China and slightly higher demands in the US. However, demand growth in the OECD nations in the second quarter was revised up by 140,000 barrels per day due to unexpected demand in Japan during June.