Oil importing countries need to remove energy subsidies as quickly as possible as they are a spur to higher consumption despite high oil prices, the International Energy Agency (IEA) has warned.
"The oil market is not functioning well because there is not significant demand response to price signals," Claude Mandil, IEA executive director, said.
Developing Asian countries such as China, Indonesia and Malaysia have reduced their fuel subsidies in the past weeks, increasing petrol and diesel prices by six to 30 per cent. But the region is still on track to account for 40 per cent of the increase in global oil demand this year.
Mr Mandil said the IEA was "fully conscious that many of those subsidies are made for social purposes". But those problems "should be addressed by other ways".
In spite of strong economic growth, Mr Mandil said, high oil prices hurt. "It is true that [in very advanced] countries the burden is not extremely high, but in most developing countries the burden is important."
The IEA warning came as US oil prices hit $57.70 (€44.7) a barrel, up 65 per cent from April last year. Demand is set to increase this year by about two million barrels a day (b/d), well above the historical trend.
The price spike has forced the Organisation of the Petroleum Exporting Countries (Opec) to reconsider an increase of its production ceiling of 500,000 b/d.
Mr Mandil warned: "Each subsidy distorts the market and gives the wrong signal as commodities seem less expensive than they are".
