'Calm down' call to oil traders

ONE of the most influential energy organisations in the world has made an unprecedented call for calm in global oil markets, warning that current record crude prices are higher than they should be and causing 'economic damage'.

Using US Federal Reserve chairman Alan Greenspan's famous catchphrase to describe overvalued US stock prices of 1996, the Paris-based International Energy Agency said oil markets were in a state of 'irrational exuberance'.

The warning came as the cost of US crude hovered just below yesterday's fresh record of $45.04 a barrel - the highest price since oil futures were launched on the New York Mercantile Exchange in 1983. In out-of-hours trading, US crude rose 17 cents above last night's close to $44.69 while in London Brent moved 20 cents higher to $41.48.

The IEA conceded the market is 'tight' but said Opec production, excluding Iraq, in July was 1.6m barrels a day above its quota at 27.1m. It added that Opec's spare capacity could be as much as 1.2m, while the IEA's own strategic stocks 'stand at the ready'.

The organisation's analyst, David Fyfe, added: 'The fundamentals do not justify $45 a barrel oil. The market is focusing too much on potential supply disruptions rather than actual supply levels. Including Iraq, Opec production is 29m barrels a day, above the peak winter demand on the cartel.'

But the IEA, a co-operative of OECD member countries, admits demand has been running at faster levels than previously thought due to updated figures from Asia and the Middle East.

The IEA said revisions to past years' data meant its previous figures had underplayed oil demand over the last three years. It today upgraded its daily consumption estimate by 750,000 barrels a day to 82.2m.

China's burgeoning economy has been a pivotal reason behind the surge in world oil prices that has pushed US crude up almost 40% since the start of the year.

Fears have also continued to climb over supply constraints, given security concerns in Iraq and Saudi Arabia and the tax battle between the Kremlin and Russia's biggest oil producer Yukos.

The IEA said the Yukos affair was 'unlikely' to undermine Russian exports. It added that North Sea output should bounce back after the peak in maintenance work this month.