Higher Brent Prices Threaten European Recovery

An expensive crude price per barrel for Brent may dent a recovery of the global economy, while the economy of Europe possess the key to global demand for oil this year, according to the International Energy Agency’s chief economist.

The current crude price of Brent floated close to $115 a barrel, not far from a high of over three months, as the Federal Reserve of the U.S. committed to push through with its bond purchasing stimulus plan, and positive data from the eurozone sparked optimism regarding demand for oil.

Faith Birol of the IEA said that the biggest concern these days is the price of oil. He told Reuters that current crude prices are trending on the expensive side, particularly given the sensitive condition of the receovery of the world economy.

He added that the economy is not as strong as many would like, and he believes that the presently high prices of oil are a significant challenge.

In the early parts of January, the IEA sharply increased predictions for the world crude demand through 2013 by 240,000 barrels daily to 90.8 million bopd. The forecast was higher by 1 percent compared to 2012, in spite of worries of reduced demand.

The IEA may change its projections upward for the 2013 world crude demand, said Birol, depending on the economy of Europe, whose recovery will have spreading impact to other regions.

Birol said that the main question for him is how and if Europe will be able to recover this year. He added that Europe is the weakest chain and if a main challenge is seen in Europe, the consequences will be worldwide, impacting the demand for oil.

A weak and gradual economic recovery in Europe, together with improving indications from the U.S. and China, may bring a promise of better development than expected by the IEA, and signal it to re-visit its figures.