Credit crisis hits oil demand

IEA, the energy watchdog for 26 developed nations, is not seeking higher Opec output, Tanaka said.

Oil demand is being hit by the global credit squeeze triggered by the US subprime mortgage crisis, the head of the International Energy Agency (IEA) told Reuters on Monday.

"Our position is yes. The downside risk increased," said Nobuo Tanaka, IEA Executive Director, when asked if the US subprime woes were having an impact on oil demand.

"The OECD and the IMF are currently making assessment of that market [subprime]. And we will see," he added.

Tanaka was in Seoul to meet finance and energy ministry officials for a routine visit after he succeeded Claude Mandil as IEA executive director at the start of September.

Analysts have said the US housing slump and credit woes, along with a rash of weak economic data have spurred concerns of a recession that would adversely impact oil demand growth.

Tanaka also said that high oil prices, currently around $80 a barrel, would have a negative impact on the economies of Asia.

"If the prices are going very high, certainly it has a negative impact on the economy. That is for sure."

But he said the IEA, the energy watchdog for 26 developed nations, was not seeking higher Opec output - after its latest decision to raise output from next month - in an effort to lower prices.

"We are not saying increasing production or reducing prices. We are saying that we should have a good dialogue with them and sharing information with each other, and reading the market and receiving the signals from the market properly. That is the kind of situation," he said.

"The market is moving, with the hurricane season and winter demands and geopolitical risks and the US economy. There are many elements now moving. We are carefully watching the situation."

Analysts said the risk of hurricanes disrupting US oil and gas production in the Gulf of Mexico as well as deepening tensions between Iran and the West, could spark another jump in oil prices, which hit a record of $83.90 a barrel on September 20.

In a meeting last month, Opec agreed to raise output by 500,000 barrels per day (bpd) from November 1 in an attempt to cool prices.

But Iran's oil minister said on Saturday that Opec could revise the decision if the increase pushed prices lower than was economical for producers, Iranian media reported. - Reuters

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