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Oil price warning from IEA over economic recovery

The International Energy Agency (IEA) says high oil prices could hit the global economic recovery and "sow the seeds of their own destruction".

The body says global oil demand is set to average 89.2 million barrels a day this year, up from 87.9 million in 2010 but lower than a previous forecast.

Higher prices and a weaker economic outlook were behind the revision.

Oil prices have been extremely volatile in the past few weeks, as uncertainty has hit the markets.

Slowing demand

Oil prices fell following the IEA report. Brent crude fell by about $2, and US light sweet crude by $2.50, before fully recovering in later trading on Thursday.

The US fall comes on top of Wednesday's $5-a-barrel drop which was sparked by rising US petrol inventories and falling domestic demand for the fuel.

"We clearly have seen demand growth slowing compared to last year's level and we're seeing it very much concentrated where the price feed through is most direct, notably in North America in terms of gasoline," said David Fyfe, head of the IEA's oil industry and markets division.

The IEA, which advises 28 industrialised nations, said the US summer driving season would be hit by petrol prices of near $4 a gallon.

"Persistently high prices at this stage of the economic cycle may ultimately sow the seeds of their own destruction," the body said.

"Until then, the market confronts fundamentals that still look likely to tighten in the second half of 2011."

The energy group noted that worries about the possible economic impact of high oil prices had come together with weak economic data from the US, China and Germany.

That, it said, had contributed to the profit-taking which has pushed oil prices lower in the past week.

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