The International Energy Agency Friday warned that higher oil prices may threaten the economic recovery next year, rebuffing bulls eyeing three-digit oil prices after a spike close to $90 a barrel.

The energy watchdog balanced the warning with a boost of its global oil demand growth forecast by 200,000 barrels a day for this year, hard on the heels of a similar upgrade by the Organization of Petroleum Exporting Countries.

In its monthly report for November, the IEA said a slowdown of global economic growth "would not support sustained high prices in 2011."

"'Be careful what you wish for' might be a valuable adage for more bullish market advocates," said the IEA, which advises the world's most industrialized countries.

The agency follows the views of the International Monetary Fund--an authority on macro-economics--, which expects world economic growth to ease from 4.8% in 2010 to 4.2% next year.

The IEA's warning comes after the oil price hit $89.70 a barrel Thursday in London and after some oil producers said high prices wouldn't hurt the economy or should even rise higher.

Prices have since eased and at 1311 GMT Friday, they were down 1.74%, at $87.29 a barrel, amid heightened expectations that China will raise interest rates.

However, Algeria, Iran and Libya, which are generally seen as hawkish members of OPEC, have said they would like $100 a barrel going forward to make up for a weak dollar.

While OPEC's largest producer Saudi Arabia and the organization's secretary general Abdalla Salem El-Badri have suggested the economy could shrug off prices at around $90 a barrel.

OPEC officials have maintained they still see the region of $70 to $80 a barrel as striking the right balance for consumers and producers.

But the IEA said the tolerance to $90 barrel has been interpreted as "the group's new price aspiration."

This raised "alarm bells in some quarters that a shift in policy...could threaten the fragile global economic recovery," the IEA said, while warning of a renewed price bubble.

A Group of 20 summit where leaders of industrial and emerging economies met Friday will add to the prevailing caution after they delayed until 2011 the work of defining problems that threaten the global recovery.

Though IEA officials have said in the past that higher oil prices could hit the economy, the agency's views tended to be more muted until now.

Only Tuesday, the IEA's executive director Nobuo Tanaka in an interview with Dow Jones Newswires said "we have to wait and see" when asked if an oil price of $90 or $100 a barrel could hurt the economy.

On a more positive note, the IEA upgraded its forecast for global oil product demand growth in 2010 by 200,000 barrels a day, making an increase of 2.3 million barrels a day, mostly on higher-than-expected third-quarter demand in industrialized countries.

The revision comes after OPEC Thursday upgraded by 190,000 barrels a day its forecast for world oil demand growth in 2010 to 1.3 million barrels a day.

For 2011, the energy watchdog maintained its growth prognosis for oil demand broadly unchanged at 1.2 million barrels a day. But in absolute terms, it upgraded its demand forecast for next year by 350,000 barrels a day, to adjust to the 2010 revision.

The IEA's assessment of OPEC crude oil supply in October differed from the producers' group. The agency said it fell by 40,000 barrels a day from the previous month on reduced output from Iraq , Saudi Arabia and Venezuela . While OPEC said it had risen by up 140,000 barrels a day on increased production in Angola and Nigeria .

Oil-industry stocks in the Organization for Economic Co-operation and Development, which are closely watched as a sign of market glut, plummeted by 42.8 million barrels in September, due to a drop in European crude stocks.

But it said preliminary data indicate they rose in October by 1.8 million barrels. A build up in crude oil more than offset a draw in gasoline following a port closure and refinery slowdowns due to industrial action in France .

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