Global oil prices should retreat in 2005, barring big political shocks, after surging 32 percent this year, the International Energy Agency's chief economist Fatih Birol told Reuters in an interview.
"We think in general demand will grow a little less in 2005. We think supply will increase in a positive way. If there is no significant geo-political event, we can say oil prices will find more moderate levels in 2005," Birol said late on Wednesday.
Oil has rallied as a surge in demand forced OPEC producers to pump at their highest level in 25 years, leaving little spare capacity to deal with unexpected outages and sharpening concern over oil supply security.
On the last trading day of 2004 for U.S. oil, prices stood at $42.95 a barrel — up more than $10 on the year, but $12 below the contract's all-time high of $55.67 a barrel on Oct. 25.
A study conducted by the International Monetary Fund (IMF) and IEA on the impact of high oil prices on the global economy has showed that a price above $40 had trimmed growth in OECD economies by 0.4 percentage points.
"The impact is greater in developing countries," Birol said, with growth cut by 1.0 point in India and 1.6 points in African countries.
"In general global economic growth will be cut by 0.5 percentage points if we continue above $40... In particular 2004 growth estimates have been revised down in the euro region, Japan, the United States and India," he said.
The IEA was set up in 1974 to combat the power of the Organization of Petroleum Exporting Countries after the first oil-crisis and advises 26 OECD nations on energy policy.
Birol said the world economy was far from facing a danger of recession as a result of high energy prices.
"If oil prices continue in 2005 at 2004 levels this will be a significant risk for all countries. But it is difficult to determine when this will lead to recession," he said.
U.S. prices were up 70 percent from the start of the year at their Oct. 25 peak, but then abruptly halved those gains on signs that high fuel costs were weighing on economic growth.
A mild U.S. winter and year-on-year surplus in U.S. crude stocks have also prompted speculative funds to take money out of energy and pursue equity or money markets.
Falling prices spurred OPEC to trim 1 million bpd of excess supply from Jan. 1, hoping to prevent a rapid buildup in stocks they fear could drag prices lower when demand wanes after the northern winter.
Birol said a moderate oil price for the IEA would be around $25 but that reaching this level may take some time.
He said high oil prices in the long-term would have a negative impact on OPEC countries, leading to a decline in their exports over a 25-year period.
Increased supply of some 2.5 million barrels per day after the launch of seven new production projects in the Middle East, including Saudia Arabia's Qatif fields, would exert some downward pressure on prices next year, Birol added.