World oil prices slumped this evening after the International Energy Agency warned that recent high prices have hurt global demand for energy.
Brent North Sea crude for delivery in May slumped $3.09 to $120.89 a barrel in London trade. New York's main contract, light sweet crude for delivery in May, sank $3.89 to $106.03.
The Paris-based IEA warned today that 'there are real risks that a sustained $100 a barrel-plus price environment will prove incompatible with the currently expected pace of economic recovery.'
The agency said in its monthly report that 'global oil demand growth has shown signs of slowing in recent months in the face of sharply higher prices.'
Following six months of forecast increases, the IEA kept its oil demand prediction for the rest of the year unchanged, saying it should reach 89.4 million barrels per day (bpd), 1.6% up on 2010.
World oil production dropped by 70,000 bpd to 88.3 million bpd in March, due to a 70% drop in production in Libya, where rebels in the east of the country are fighting Moamer Gaddafi's regime, backed by NATO air strikes.
'The loss of Libyan production and the 25-30% jump in oil prices since the crisis began in mid-February has so far drawn a limited response from fellow OPEC members,' the IEA said.
Traders are particularly concerned that rocketing prices could undermine the delicate recovery in the US, which is the world's biggest economy and the largest oil consuming nation. Surging oil prices have sparked fears of a return to the record levels above $147 a barrel seen in 2008.
The International Monetary Fund warned yesterday that high oil prices were a key risk to solid global economic recovery. 'The key downside risk to growth relates to the potential for oil prices to surprise further on the upside because of supply disruptions,' the IMF warned.
In a separate report today, the Organisation of Petroleum Exporting Countries (OPEC) raised its growth forecast for world oil demand in 2011, expecting little import from recent events in Japan and Libya.
World oil demand will now grow by 1.39 million barrels per day, or 1.61%, to 87.94 million barrels a day, the cartel said in its latest monthly report. In its previous report, OPEC put this year's demand at 87.74 million barrles.
Oil prices began the week on the front foot, striking two and a half year peaks yesterday on the back of the weak dollar and concerns over spreading unrest in the Middle East and North Africa. However, prices then tumbled before last night's close, losing almost $3, as traders fretted about the impact of recent price rises on the US economy.
