NEW DELHI - International Energy Agency (I.E.A.) earlier this month asked India to remove subsidies on fuel to moderate demand in the country that had contributed to high international oil prices.

I.E.A. Executive Director Nobuo Tanaka, on a visit to India, met Petroleum Minister Murli Deora on Sept 10 to make a case for removing fuel subsidies and inviting New Delhi to become a member of association of oil consumers in US and Europe.

“What is necessary is to have policy of phasing out price controls and subsidies. (This is) very important to have impact on demand,” he told reporters here.

Government had not allowed state-run Indian Oil, Bharat Petroleum and Hindustan Petroleum to raise petrol, diesel, L.P.G. and kerosene prices in line with rise in the cost of raw materials. The artificially suppressed prices have led to phenomenal growth in demand in India and China, which I.E.A. and U.S. have blamed for the rally in international crude oil prices that in July touched $147 per barrel.

“When we see the situation in U.S., high prices have certainly slowed down demand and it could happen to other countries like India and China,” he said.

Even though oil prices are off their peak, I.E.A. views $ 103-104 per barrel price as very high. “We are concerned about the current levels of price... it is a burden especially on emerging economies without energy production.”

“High prices suppressed, in fact destroyed demand in O.E.C.D. countries,” he said. “We want to see that the market is being sufficiently supplied by the producers,” he added.

Tanaka made a case for India to become a member of I.E.A.  saying it would send “very good signals” to the market and harmonize energy policies.

India and China, two of the largest oil consumers in the world, are not members of I.E.A. “There is big uncertainty about China and India. We do not, for example, know what inventory levels they have. Without knowing inventory levels, we cannot make projections of demand in the future,” Tanaka said.

The two nations joining I.E.A. would harmonize energy policies, stockpile policies and energy efficiency. “I think I.E.A. can do a lot with the two economies,” he said but could not give a time frame by when the two nations would join I.E.A.

“So far we haven’t seen any evidence of demand slowdown in India, China or Middle East countries, partly because of subsidies and partly because of very strong economic growth.”

He did not hazard any guess for oil prices saying if oil cartel O.P.E.C. was to maintain its output at current level the prices would fall.

“We are concerned that currently capacity expansion (of oil production) is not matching the speed of demand expansion.  So market is still very tight. In these tight market, small incidents like geopolitical tensions or hurricanes create huge instability,” he said.

“We want to have some buffer or spare capacity in the market,” he said adding the spare capacity would come through increase in production or cut in consumption.

“Volatility comes with very narrow buffer.”             (PTI)