LONDON (AFP) – The oil market sank on Thursday as the International Energy Agency warned that high prices could threaten global economic growth and called for increased output to tackle the problem.
Oil also fell after news that Japan’s economy plunged back into recession in January-March, contracting sharply after the nation’s biggest recorded earthquake, a tsunami and a nuclear crisis.
Brent North Sea crude for delivery in July dipped 49 cents to $111.81 per barrel in late afternoon London deals.
New York’s main contract, light sweet crude for June, dived $1.23 to $98.87. This contract expires at the close.
“A note of caution was injected … with a warning from the IEA about the effects current high oil prices could have on global economic recovery prospects,” said CMC Markets analyst Michael Hewson.
“This has led to a little softness, especially with the Japanese economy slipping back into recession.”
The Paris-based IEA said that despite a recent 10-percent fall, oil prices remained high because of strong demand and geopolitical uncertainty — a reference to unrest in the Middle East.
The IEA, the energy monitoring and strategy arm of the developed economies, said higher oil prices were “affecting the economic recovery by widening global imbalances, reducing household and business income, and placing upward pressure on inflation and interest rates.”
The IEA governing board said: “As global demand for oil increases seasonally from May to August, there is a clear, urgent need for additional supplies … to prevent a further tightening of the market.”
It said in a statement that further increases in “prices at this stage of the economic cycle risk derailing the global economic recovery and are neither in the interest of producing nor of consuming countries.”
Oil importing developing countries could be “seriously affected by high oil prices, undermining their economic and social well-being,” it noted.
The IEA “urges action from producers that will help avoid the negative global economic consequences which a further sharp market tightening could cause, and welcomes commitments to increase supply.”
New York oil prices jumped back above $100 a barrel on Wednesday, lifted by a weak dollar and an unexpected stabilisation in US crude stockpiles.