Oil at $70 or above would hurt recovery

A fragile global economic recovery will be hurt if oil prices stay at $70 per barrel or rise higher, International Energy Agency (IEA) Chief Economist Fatih Birol said.

He also said Europe was likely to face a glut of gas by 2015 and it may be hard to garner support for both the rival schemes for gas pipelines across Turkish territory, one of which is backed by the European Union, the other by Russia.

Birol told Reuters he did not want a decision by the Organization of the Petroleum Exporting Countries (OPEC), which is to meet on Sept. 9, to boost oil prices to harmful levels.

"The decision I think they will take will foster the economic recovery, rather than dampen the economic recovery hopes," Birol said in an interview late on Monday.

"We would not like to see prices going up to levels that would be a risk to the global economic recovery."

U.S. light crude for September delivery was trading at $70.80 a barrel at 1000 GMT on Tuesday.

"If the prices go much higher than today I think that would be a problem for the economic recovery; $70 and above, especially for oil importing countries," Birol.

The IEA advises 28 industrialised countries.

OPEC, which provides a third of global oil supply, agreed last year to cut oil production by 4.2 million barrels per day, about 5 percent of daily world demand, starting from Jan. 1, as oil demand has fallen with economic recession.

Oil prices hit an all-time high above $147 in July 2008 before plunging towards $32 in December. Since then they have more than doubled due to hopes of economic recovery.

Birol said the IEA would revise its forecast that saw upstream investment fall 21 percent in 2009. Birol said he saw more order cancellations than new investment, but declined to give a specific figure. The updated forecast would be released for the IEA world energy outlook in November, he said.

Gas demand

Birol said there may not be enough natural gas demand in Europe to support both competing major pipeline projects, Nabucco and South Stream, when they are expected to go on line.

The EU-backed Nabucco pipeline project aims to deliver 31 billion cubic metres of Caspian or Central Asian gas to Europe by 2014, while the rival Russian-sponsored South Stream project plans to pump Russian and other gas from 2015.

Both pipelines would cross Turkish territory but are still in their early planning stages. Nabucco is seen lagging slightly because of failure so far to secure suppliers for the pipeline.

Birol said that new gas supplies from elsewhere, especially those from Gulf-based liquid natural gas projects seen coming on line, would be redirected to Europe as the United States increases its consumption of non-conventional gas products.

"Around 2015 we should have a gas glut in Europe and elsewhere, and it would be difficult to convince consumers of two projects coming from the same countries and trying to finance them," he said.