London ? Higher, more volatile oil prices will loom this winter if OPEC refuses to boost crude production as major importing countries head into the peak heating oil season, an industry report warned Wednesday.

A decrease last month in crude exports from Iraq has squeezed supplies and contributed to a dwindling of U.S. inventories. Global demand, meanwhile, is forecast to rise by a robust 1.6 million barrels a day in the fourth quarter, the International Energy Agency said in its monthly oil market report.

Markets now face a challenge similar to that in 1999, when a plunge in oil inventories paved the way for a spike in prices and extreme instability, it said.

“Today’s situation is every bit as precarious, given the fragile state of the global economy and the threat of military action against Iraq,” the agency said in an unusually pointed message.

World oil production slipped to 76.1 million barrels in August, down 580,000 barrels a day from July. At the same time, the IEA raised its estimate of demand growth for the third quarter by 220,000 barrels a day to 76.5 million barrels. Global demand would swell to 78.1 million barrels a day in the fourth quarter, it said.