Oil consumption in the United States and OECD nations is weakening but China and India have yet to show signs of falling demand, making it unclear if the price fall below $120 is a turning point, the IEA's chief said.
"We don't know if this is a turning point. We'd like to know but we don't have an answer yet," Nobuo Tanaka, executive director of the International Energy Agency (IEA), the adviser to 27 industrialized countries, told Reuters on Tuesday.
He added that the current $119-$120 per barrel levels for crude oil are still very high, although prices have dropped from record highs near $150 a barrel touched on July 11.
The Paris-based IEA says consumption, which remains strong in emerging countries, will push oil demand higher this year, despite the global slowdown, leaving supplies as its main worry.
Surging fuel consumption in China, India and the Middle East has been largely seen as responsible for fuelling oil's rally, pushing prices up more than six fold since 2002.
The IEA expects oil demand to grow this year, by 890,000 barrels per day, according to its latest monthly oil report.
As a result, the agency's biggest concerns remained on the supply side, rather than demand, Tanaka said.
He referred to Nigeria, where militant attacks have disrupted output, and to hurricanes affecting production in the Gulf of Mexico.
"Our biggest worries are Nigeria, the hurricane season, etc... We cannot relax too much. There is very robust demand in China, India and the Middle East."
He said he was satisfied with OPEC's delivery on its commitment to increase supplies and was not asking for more.
"They have committed to make a certain increase and they have done it. If they maintain the current level, the supply situation is better. But we want to see the current level maintained," Tanaka said when asked whether the IEA would ask OPEC to raise output to push oil prices yet lower.
The Organization of the Petroleum Exporting Countries is unlikely to change oil output in September to reverse the recent price fall unless the slide continues to below $80 a barrel, an OPEC source said on Tuesday.
IEA Seeks More Subsidy Cuts
Tanaka, who will address energy officials at the ASEAN Energy Business Forum 2008 on Wednesday, said he supported the decisions by some countries in the region to cut fuel subsidies.
He said the removal of all subsidies would help promote energy efficiency, limit demand and put a lid on prices.
"If you want to be energy-efficient, you have to maintain a good incentive for the end user, and a direct price is the best way," Tanaka said.
Indonesia, Malaysia and Vietnam, all members of the Association of South East Asian Nations (ASEAN), cut domestic subsidies earlier this year when faced with a surging oil bill.
Thailand, the host of the forum, and of the ASEAN Ministers on Energy Meeting (AMEM), announced last week that it would start phasing out diesel subsidies.
"We'll praise countries which have cut subsidies for some courageous decision. It's a tough policy. And we'll encourage other countries to follow," Tanaka said.
But he said very poor people should be helped.
"Some other support should come in. There are different methods of cutting subsidies. We have to think creatively: how to support the poorest?" he added.
The IEA will use the meeting to offer its expertise in stockpiling.
The latest fall could provide an opportunity for some countries to start building reserves, Tanaka said.
"This is ASEAN's first oil shock. They should work with us," he said, adding that the association had been a net oil exporter during the first two shocks but has become an importer.