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    IEA Sounds Alarm

    Energy watchdog says oil output needs to be increased.

    WASHINGTON -- Oil producers should prepare to increase output or risk setting in motion a chain reaction that could cause prices to soar and supplies to dwindle, the International Energy Agency said.

    In its latest monthly report, the IEA issued a thinly veiled plea to OPEC to consider raising exports when it meets next month, the Financial Times reported.

    "In 1999 markets demonstrated that they can turn quickly, contributing to extreme price volatility and instability. Producers will need to make timely decisions to meet market demand," the report warned.

    But while OPEC members pledged to maintain market stability, other factors in the IEA report will cause them to be wary about lifting output. For example, oil demand in the first quarter dropped by more than 1.6 million barrels per day, a 1.2-percent decrease -- the biggest drop in 12 years.

    But if output cuts by OPEC and its allies -- principally Norway and Mexico -- remain in place, and given that Iraq has already taken 45 million barrels out of the market with the export suspension it ended last week, stocks would head for the bottom of their five-year range by the end of the third quarter, the report said.

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