High oil prices here to stay

THE prospect of oil at $60 a barrel on world markets drew sharply closer today after a leading energy think-tank raised its forecast for crude demand and said strong fundamentals were supporting the current high price.

Dismissing claims speculators were behind a rally that has seen the price of US light crude move within two cents of its all-time record, the International Energy Agency blamed cold weather, lower stocks and strong economic growth in the US and China.

It now believes global oil demand will hit 84.3m barrels a day this year, 330,000 more than its previous forecast and a jump of nearly 2m barrels on last year.

'Fingers have once again been pointed at speculators, but look at the global picture and the recent rally makes more sense,' said the IEA. 'The reality is that oil consumption has caught up with installed crude production and refining capacity. If supply continues to struggle to keep up, more policy attention may come to be directed at oil demand intensity in our economies and alternatives.'

The stark comments in the IEA's March market report come days after Adnan Shihab-Eldin, acting secretary general of the Organisation of Petroleum Exporting Countries (Opec), said oil could hit $80 a barrel within two years and predicted a price range of between $40 and $50 for the rest of the year. US crude was off 50 cents at $53.04 today while Brent was unchanged at $51.81.

Opec ministers are widely expected to vote for a rollover in the cartel's output quota of 27m barrels when they meet in Iran next week. But pressure for a further unofficial increase is likely to grow, given fears that high oil prices could derail global economic growth.

The report shows production by Opec countries excluding Iraq totalled 27.2m barrels per day in February, with Saudi Arabia hitting 9.2m. Iraq output was 1.85m and the IEA puts spare capacity across all Opec states at around 2m barrels per day.

{2} The agency said relentless growth in the Chinese economy is only part of the reason for its rise in global demand forecasts with the cold weather in key countries in the second half of February accounting for one third of its 330,000-barrels-a-day revision. US growth had also been stronger than expected.

Oil prices have surged more than 13% alone this month, pushing US light crude to within a whisker of the $55.67 record set last autumn and Brent to an all-time high $54.30.

Demand for crude typically eases in the second quarter of the year as winter ends and figures showing a recovery in US stocks in recent days have led to some profit-taking on the market. But the IEA said stocks are down not only in Europe, but also in Asia-Pacific and China.

It adds that increased air travel has pushed up demand for jet fuel and US refiners face a struggle to churn out enough hard-to-produce cleaner fuel for American motorists.

And British Airways reckons fuel costs could soar £300m to a whopping £1.44bn from April. In a bid to recoup some of those mounting costs it is increasing the fuel surcharge on cargo by 15%.

Analysts say it is only a matter of time before passengers are again hit in the pocket. The airline currently levies a £20 tariff on return long-haul tickets and £8 on return shorthaul journeys.

BA admits that the passenger surcharge could move higher in coming months if the price of crude oil does not drop significantly. 'It is kept under permanent review as it has been since last May when we first introduced it,' a spokesman said. Fuel is second to staffing in costs for the airline.