Oil Price Is Too High as Slowdown Spreads, IEA Says

By Suttinee Yuvejwattana

Sept. 22 (Bloomberg) -- Crude oil prices are ``too high'' because the economic slowdown is yet to spread to India and China, where subsidies are propping up demand, the International Energy Agency's deputy executive director said.

``When the government gets involved, that makes the market more rigid and more volatile,'' William Ramsay said in Bangkok today.

The IEA, an adviser to 27 nations, on Sept. 10 lowered its 2008 demand forecast as high prices and slowing economic growth trimmed demand for diesel, gasoline and jet fuel. The agency cut this year's forecast by 100,000 barrels to 86.8 million barrels a day and next year's by 140,000 barrels to 87.6 million barrels a day.

``The economic slowdown in the U.S., Europe hasn't gotten into China, India much but at some point you have to presume it will,'' Ramsay said.

The Organization of Petroleum Exporting Countries, the supplier of more than 40 percent of the world's oil, this month also reduced its forecast for 2009 oil demand.

The 13-member group cut its estimate for average oil consumption next year to 87.66 million barrels a day, compared with an estimate last month of 87.80 million barrels, according to a monthly oil market report on Sept. 16. OPEC, based in Vienna, also trimmed its forecast for this year by 120,000 barrels a day.

``Supply has improved a bit since May,'' Ramsay said. ``The market recognized the improvement and oil prices fell from July's high. If you can produce oil for a lot less than $100, why do we have to pay that range?''

Crude oil should be trading between $20 a barrel and $100 a barrel, Ramsay said.

Oil in New York was at $105 a barrel, up 45 cents, at 1:14 p.m. Singapore time. Prices surged to a record $147.27 a barrel on July 11.

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net