The International Energy Agency warned today of increased tension on global oil markets after 2010 as spare capacity in the OPEC production cartel shrivels at a time when buoyant economic growth is driving up demand.

London Brent crude rose to $76.03 a barrel, the highest level since mid-August 2006, a whisker from the all-time record high for Brent of $78.65, reached in August, 2006.

The IEA said: “The potential effects of a combination of low OPEC spare capacity and slow non-OPEC production growth are of significant concern — all the more so when considered alongside tightness in other hydrocarbons, particularly the natural gas market,” the IEA said in its Medium Term Oil Market Report.

The study forecast that the supply of automotive biofuels would roughly double from 2006 production levels to 1.8 million barrels a day by 2012, when they would nonetheless account for only 2 per cent of global oil supplies.

“Despite four years of rising oil prices, this report sees increasing market tightness beyond 2010, with OPEC spare capacity declining to minimal levels by 2012,” warned the IEA, a Paris-based body that seeks to coordinate the oil policies of leading consuming countries.

It cited “a stronger demand outlook”, production difficulties and geopolitical problems as factors behind its downward revision of spare capacity in the Organisation of Petroleum Exporting Countries by 2 million barrels a day in 2009.

The report forecast that as the world economy expands by roughly 4.5 per cent a year, demand for oil products will increase by an average 1.9 million barrels a day or 2.2 per cent per year to reach 95.8 million barrels a day by 2012.

Global economic momentum over the next five years will be powered by Asia and the Middle East, where demand for oil will grow more than three times faster than in the 30 industrialised members of the Organisation for Economic Coooperation and Development.

“These countries [in Asia and the Middle East] are moving towards the threshold level of income [about $3,000 per capita] where their consumers buy cars and energy-consuming white goods,” the IEA said.

In the OECD area, demand for oil products is projected to rise from 49.6 million barrels a day in 2007 to 52.1 million barrels a day in 2012.

The predicted increase reflects demand for transportation fuel in North America, where consumption will expand twice as fast as in Europe or the Pacific.

In its assessment of medium-term crude oil supply, the IEA said that overall OPEC output capacity, hampered by security and investment problems in Iraq, Nigeria and Venezuela, would likely rise to 38.4 million barrels a day in 2012 from about 34.4 million barrels a day this year.

But OPEC spare capacity, the difference between what the IEA sees OPEC producing and what its members could produce, is expected to decline sharply after 2009.

The report, however, warned that “a conservative approach to OPEC capacity is justified — in recent years, effective OPEC capacity has averaged around 1 million barrels a day below nominal capacity."

David Dugdale, an analyst at MFC Global Investment Management, said: “The oil price is at very high levels for good reasons and there’s every possibility we could see further strength in coming months.

"With OPEC continuing to withhold oil from the market the general picture remains one of tightness, with kidnappings in Nigeria, the upcoming hurricane season and ongoing geopolitical concerns all adding to uncertainty over the summer.”

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