Gazprom, the Russian energy giant, warned yesterday that oil prices could double from current record highs to hit $250 a barrel by next year.

Alexei Miller, Gazprom's chief executive, said competition for resources was growing. "Today we are witnessing a very great change for hydrocarbons. The [oil price] is very high and we think it will reach $250 a barrel."

A company spokesman said Gazprom believed that level would be hit in 2009.

Gazprom's warning came as the western countries' energy watchdog said high oil prices were needed to choke off demand and bring the market into balance.

The International Energy Agency's frank comments followed the sharp rise in prices last week, which saw crude oil jump more than $16.24 in less than 36 hours to a record $139.12 a barrel. Crude oil prices were volatile yesterday, rising to a high of $137.98 a barrel.

The IEA said in its monthly report: "Supply growth so far this year has been poor and higher prices are needed to choke off demand to balance the market." It added: "Abnormally high prices are largely explained by fundamentals."

Writing in today's Financial Times, Tony Hayward, chief executive of BP, one of Europe's biggest energy companies, rejected as a "myth" the idea that high oil prices were caused by speculation and similar "technical" factors.

"While these factors may have an impact on the margins, the data clearly show that high prices are really caused by economic fundamentals," he wrote.

The IEA cut its oil demand growth forecast for the year, as expected, but surprised the market with a deep reduction in its forecast for non-Opec supply growth. "This is a case of supply and demand pulling in opposite directions to push prices higher."

It said oil demand growth would increase by 800,000 barrels a day, 200,000 b/d less than forecast last month as record oil prices and the partial removal of fuel subsidies in Asian countries damped consumption.

But it said in spite of fresh signs of lower demand, particularly in the airline sector, so far there were "very few signs of slowing demand in non-OECD countries where economic growth is far more significant than price in determining demand".

James Neale, of Citigroup in London, said demand, while softening, was by no means falling enough to offset tightening supply. Indeed, the IEA cut its forecast for non-Opec supply growth to just 455,000 b/d, or 225,000 b/d below last month's forecast.

Non-Opec supply growth has slowed significantly since 2005 because of production declines in mature areas such as the North Sea and Mexico, and previous areas of strong growth such as Russia have stagnated.

Francisco Blanch, of Merrill Lynch, raised the forecast for the price of US crude in the second half of the year to $121.50 a barrel on "a combination of lower than expected supplies and unrestricted demand".

Tony Hayward, Page 11 www.ft.com/oil