Rising cost of oil 'a threat to global economic recovery'

GLOBAL economic recovery is threatened by "overheated" oil prices which have reached an 18-month high, the International Energy Agency (IEA) has said.

The warning came after crude oil hit $87 a barrel last week – its highest price since October 2008.

That has combined with fuel duty increases and the weak pound to produce record prices at the pumps – petrol currently averages 120.4p per litre, and diesel 121.38p per litre.

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The IEA said a recovery in demand for oil supported a $70-$80 price level and questioned "the sustainability of prices markedly higher than those levels".

The agency – an arm of the Organisation for Economic Co-operation and Development – also raised the spectre of another speculator-fuelled hike in oil prices. Speculators helped push crude to a record $147 per barrel two years ago.

The IEA said: "Recent exuberance … may have played a role (in price rises]."

And it added: "Ultimately, things might turn messy for producers if $80-$100 (per barrel] is merely seen as the new $60-$80, stunting economic recovery."

The Automobile Association, which has accused speculators of pushing up fuel prices, said it was the "same old story".

AA spokesman Luke Bosdet said: "Speculation talks up the price, reality brings it back down. Just like last year, the banks are predicting a $100 barrel of crude in the near future.

"The long-term fear is that the speculators who made a killing in 2008 will be unable to resist pumping up the price even more when the global economy finally recovers. In which case, we will be back on the rollercoaster."

However, Mr Bosdet added: "Strangely, although higher oil prices will have had some influence on the price of fuel, the current high prices are due to cutbacks in fuel production and a weaker pound."