Oil prices continue to rise

Oil advanced in London as the International Energy Agency stood by its demand forecast and Libyan rebels rejected a cease-fire plan, damping optimism that the nation's exports may be restored soon.

Crude futures recovered from earlier losses after the IEA said global oil demand will rise 1.6 per cent this year, even as it warned that crude prices above $100 a barrel are starting to hurt the global economy. In Libya, rebels turned down the African Union's plan that would leave Muammar Qaddafi in power.

"Reports of strong demand have been in the public eye for quite a while, and that is keeping the uptrend going," said Alexander Ridgers, head of commodities of CMC Markets in London. "I don't think any new reports are changing the picture significantly."

Brent oil for May settlement rose as much as 1.1 per cent to $124.47 a barrel on the ICE Futures Europe exchange in London, after falling as much as 1.6 per cent. Crude futures for May settlement on the New York Mercantile Exchange was at $109.38 a barrel, down 54 cents, after dropping 2.5 per cent yesterday.

Worldwide oil consumption will rise by 1.4 million barrels a day this year to average 89.4 million a day, Paris-based IEA said today in its monthly Oil Market Report.

Still, preliminary data "already show signs of oil demand slowdown" and global supplies are starting to look "thin" as the Libyan conflict strains spare production capacity held by the Organization of Petroleum Exporting Countries, the IEA said.

"There are real risks that a sustained $100-plus price environment will prove incompatible with the current expected pace of economic recovery," according to the IEA report. "The surest remedy for high prices may ultimately prove to be high prices themselves."

Today's monthly IEA report followed yesterday's World Economic Outlook from the International Monetary Fund, which said the US economy will expand at a slower pace than in 2010 amid an unemployment rate above 8 per cent and a drop in consumer confidence.

The threat of further oil-price increases has become a "key downside risk" for global growth, the IMF said.

The US, the world's largest economy and the biggest oil consumer, will expand 2.8 per cent this year, down from 2.9 per cent last year and a January forecast for 2011 of 3 per cent, according to the IMF.

Bloomberg