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Oil price shock warning on global economy

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Oil price shock warning on global economy

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High crude prices are threatening the global economic recovery and will lead to a reduction in oil demand later this year.

That was the latest prediction from the International Energy Agency which monitors the sector on behalf of western governments.

The IEA also said in its monthly report that it was ready to release its strategic crude oil stockpiles if needed after the Japanese earthquake and tsunami.

The agency confirmed that the global oil supply rose to an all-time high in February as output by the Organisation of Petroleum Exporting Countries (OPEC) fell only slightly after its members stepped in to compensate for the loss of Libyan oil output.

If oil prices remain above $100 a barrel throughout this year it will have a negative impact on the global recovery, the head of the IEA, which advises 28 industrialised countries on energy policy, said.

“If prices move higher, it will certainly create more problems”, Nobuo Tanaka said adding that the agency is ready to release its strategic crude oil stockpiles if needed in the aftermath of the Japanese earthquake and tsunami.

The IEA said it believes Japan has ample spare oil-fired capacity to meet its power generation needs after nuclear plants were damaged during the earthquake.

On Tuesday Brent crude fell below $110 a barrel for the first time in nearly three weeks on as a deepening nuclear crisis in Japan and rising radioactivity levels caused a sell-off across financial markets.