Oil inventories in importing nations have risen but are still low, contributing to market instability and volatile prices, the International Energy Agency reported.

The IEA prepared its monthly oil report before the Organization of Petroleum Exporting Countries announced Wednesday that it would cut its oil output by 5 percent, or 1.5 million barrels a day. OPEC has defended its production cut by saying that an economic slowdown creates the risk that crude prices might collapse.

"It is one thing to raise prices in a booming economy, (but) it is another to do so in a period of economic slowdown," the IEA said.

The IEA is the energy arm of the Organization for Economic Cooperation and Development, which represents the interests of the world's richest countries.

It generally argues for keeping oil prices cheap and supplies plentiful, and it criticized OPEC on Thursday for the cartel's decision to curtail output for the first time since March 1999.

Crude prices rose Friday, as oil markets digested the implications of OPEC's production cut. Contracts of light, sweet crude for February delivery rose 72 cents to $31.10 a barrel on the New York Mercantile Exchange.

In London, March contracts of Europe's benchmark Brent crude increased 80 cents to $26.42 a barrel.

OPEC members meeting this week in Vienna, Austria, said they would pump more oil to meet any unforeseen shortfall in supply. However, some energy analysts predicted that crude prices might increase to as much as $40 before OPEC agrees to bring additional crude to market.

In an unusually pointed remark, the agency criticized OPEC officials for making what it said were unhelpful public statements about conditions in oil markets.

"Oft-repeated statements by unnamed officials generate uncertainty, fuel speculative pressure and thereby feed volatility," it said. "Maybe we should all try to lower the rhetoric."

In its report Friday, the IEA also unexpectedly revised its forecasts of oil demand downward.

Demand for the fourth quarter of last year and the first quarter of this year is 77.34 million barrels a day, it said, down 350,000 barrels from its forecast in last month's report.

The agency now expects demand for all of 2001 to average 77.3 million barrels a day, 280,000 barrels less than it predicted in November.

"The global economy is in a more precarious position this year than last. So, therefore, is oil demand," it said.

Global crude production averaged 77.72 million barrels a day in December, down 1.34 million barrels a day from in November. The decrease resulted mainly from a plunge in output from OPEC member Iraq, which slashed its exports last month due to a dispute over pricing with the United Nations. The world body regulates all Iraqi exports.

OPEC's actual output slipped to 27.86 million barrels a day in December, down from 29.54 million barrels the month before. OPEC's 11 members account for almost two-fifths of the world's oil supplies.

Crude inventories grew by 1 percent in November. While this trend is positive, inventory levels are still low overall, the IEA said.