Schork Oil Outlook: IEA… Having it Both Ways?

“Oil prices are entering a dangerous zone for the global economy,” said Fatih Birol, the IEA's chief economist. “The oil import bills are becoming a threat to the economic recovery. This is a wake-up call to the oil consuming countries and to the oil producers.”

—Financial Times (January 04, 2011)

Since Mr. Birol was quoted three months ago, spot Brent crude oil on the ICE has rallied by 36% through Monday; from $93.53 to $127.02… or from £60.00 to an all-time high (in pound sterling) of £77.64. As a result, the retail cost of automotive diesel in the U.K. has jumped from £1.291 a liter to £1.395 (+8%) and the cost in Germany has risen from €1.312 to €1.425 a liter (+8½%). Meanwhile in the U.S., the largest consumer of oil in the world, retail gasoline this spring has jumped to an all-time real high (adjusted for inflation) of $3.791 a gallon.

Along this backdrop we have the latest observation from the IEA:

“There are real risks that a sustained $100-plus price environment will prove incompatible with the currently expected pace of economic recovery… preliminary January and February data suggest that persistently high oil prices may have already started to dent demand growth”.

—IEA Monthly Oil Market Report, Bloomberg (April 12th)

Oddly enough however, the current spike in oil did not behoove the IEA to alter its view that global oil consumption will increase by 1.6% to 89.4 MMbbl/d.

We think the incongruity in the IEA’s stance glaring… if not disingenuous. Oil prices have spiked more than 30% from whence the IEA first cautioned that oil had entered “… a dangerous zone for the global economy”.

Today’s issue of The Schork Report highlights this inconsistency… exactly how high do oil prices have to go before the IEA thinks global oil consumption will respond?


Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.