$40 Oil Gives World $1 Trillion Boost-IEA

He calculated those savings from the difference between a $40 oil price through 2009 compared to an average $100 oil price in 2008.

The world would get a $1 trillion economic stimulus if oil prices stay at around $40 a barrel through 2009, the head of the International Energy Agency told Reuters on Thursday.

IEA Executive Director Nobuo Tanaka warned of a possible repeat of last year's record high oil prices by 2013 if producers did not invest in new supplies.

Lower fuel bills were now supporting an ailing world economy, and Tanaka urged the club of oil exporters, OPEC, to be cautious before cutting oil supplies at a meeting on March 15.

Oil prices have fallen from a record high of nearly $150 a barrel struck last July and have since mid-December traded in a narrow band near $40, caught between slumping demand and the possibility of further OPEC output cuts.

"Watch carefully the market and make proper decisions," Tanaka urged OPEC, speaking on the sidelines of a London conference hosted by research group New Energy Finance.

"Mutual interest for producing and consuming countries is economic recovery, so maintaining this kind of stimulus is certainly very helpful," he said of an estimated $1 trillion boost from lower energy costs.

He calculated those savings from the difference between a $40 oil price through 2009 compared to an average $100 oil price in 2008.

SHRINKING CAPACITY

Tanaka said it was natural to cut production if demand declined, but would not comment on whether the IEA would further cut its forecast for global oil demand in its monthly oil market report on Friday next week.

He urged producers to invest in new production now to avoid a repeat of last year's oil price spike.

A lack of investment now by the Organization of the Petroleum Exporting Countries could shrink the group's unused oil capacity by 2013, threatening a repeat price surge, he said.

"To the end of 2013 currently we see spare capacity of about 3.5 million bpd (barrels per day). But that number could be much, much smaller. It could be 2 or 3 million bpd lower towards 2013."

"We may have a supply crunch around 2013, that is our serious concern. The same thing as last year could happen around that time if investment is not really happening."

Low oil prices may benefit the global economy but not a fight against climate change. Low-carbon energy alternatives such as solar and wind power are not competitive now at a $40 oil price.

In Europe, an emissions trading scheme is meant to try and level the playing field for clean energy, by requiring power plants and factories to buy permits to emit carbon dioxide from burning fossil fuels.

But carbon prices have also fallen, to record lows this year, as a result of recession.

"Our concern is that the current low price of carbon especially will give a very wrong incentive for (renewable energy) investment," said Tanaka.