Oil must stay high if world to have enough supply

By Peg Mackey and Alex Lawler

ROME (Reuters) - Energy producers cannot halt a rally that has driven oil to nearly $120 a barrel and the world might have to live with even higher prices if it wants supplies for the future, exporters said on Tuesday.

Three days of talks in Rome between producers and their customers drew broad agreement a weak dollar has pushed oil prices higher and that the cost of extracting more from the ground has soared.

One thing the 60 or so energy ministers and dozens of industry executives struggled to agree was that the price, which hit a record of $119.74 a barrel on Tuesday, was too high.

"The oil market is in a state of fear, if not panic," said Shokri Ghanem, head of Libya's National Oil Corporation, but he also said expensive oil was necessary.

"Prices will have to stay high in the long term to encourage exploration and production."

Producers and consumers alike were worried, but for different reasons. Producers were nervous about falling demand and consumers dreaded economic collapse.

"Oil prices are clearly too high. We are not happy with the prices or the direction they're going in," said Jeffrey Kupfer, acting deputy secretary of energy for the United States, the world's biggest energy consumer.

The International Monetary Fund has predicted the U.S. economy would enter recession this year and some fear high prices could cause global economic damage.