Commodities: Iraq has the oil price over a barrel

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The Independent Online
SEVERAL times in the past two decades, the oil price has been close to the heart of the man on the Clapham omnibus.

He watched with horror as petrol followed crude oil as it rocketed from dollars 2 a barrel in 1970 to dollars 11 four years later, surging again in the late Seventies to approach dollars 40 in 1981.

He was relieved when it collapsed below dollars 10 in 1985, even if the price at the pump did not quite follow it down.

Apart from a spectacular but brief surge during the Gulf crisis, oil has hardly been in the news since.

Petrol prices have eased up and down, but not enough to cause real concern. The man on the bus has had better things to think about.

Oil companies have found the relatively steady price comfortable, if not high enough to encourage much development in marginal areas such as the North Sea. Business users have also been content: energy costs are a big issue, but the the cost of oil is rarely cited as a problem.

The good news, then, is that the oil price is unlikely to change much in the next six months.

Brent crude, the international marker, is now dollars 19 a barrel, and according to Swiss Bank Corporation, it will average dollars 18.70 for the whole year.

This comforting prediction is based on a series of assumptions, and experts agree that the price could be knocked out of a line by a number of events.

The chief 'swing factor' in the oil price is Opec production. Over-production in the autumn and winter pushed Brent down from dollars 21 to less than dollars 17; optimism that Opec's production- limiting agreement in February would hold pushed it back up to dollars 19.

The first indications of post- agreement production came through last week when Reuters estimated Opec's March output at 24.28m barrels per day. This was a big reduction on February's 25.55m bpd, and the market showed its contentment by holding the Brent price steady.

The March figure is, however, 700,000 bpd above the quota set at the February meeting. Analysts do not believe this will cause short-run problems. Indeed, Geoff Pyne, of UBS Phillips & Drew, says Brent could reach dollars 20 in the next month as refinery maintenance takes up to 1.5m bpd out of the market.

Stocks held by companies were run down during February, he says, and Opec's relatively good behaviour will cause gentle upward pressure on prices.

Analysts say, though, that trouble could be erupt at the next Opec meeting in June. Kuwait agreed to restrict production to 1.6m bpd very unwillingly, and said it would feel free to pump whatever it wanted if others broke commitments.

The March figures suggest that one country, Iran, has been doing just that: Reuters estimates it was producing at 3.7m bpd, compared with its quota of 3.34m bpd.

Peter Bogin, of Cambridge Energy Research Associates in Paris, says that Kuwait could increase production by 400,000 bpd on its own, but the real danger is that if it broke ranks, 'everyone else would then break the agreement'. If that happened, the oil price would go into free fall.

Any one of a set of political factors could also come into play. Warren Christopher, the US Secretary of State, is trying to extend sanctions against Libya because it will not hand over the Lockerbie suspects. These could cover oil, although analysts do not believe the Americans will be able to push their proposal through the UN.

Mr Christopher has also branded Iran an outlaw state: any increase in the political heat in the Middle East could eventually start to push the oil price up.

Most eyes are concentrating on Iraq, though. In 1990 it produced 3.1m bpd; now it exports nothing. If sanctions are lifted, the flood of oil onto the world market would inevitably depress prices.

Few people now believe that will happen this year, because Saddam Hussein is refusing to co-operate with the United Nations.

But it must happen one day - and that is when oil will rush back into the consciousness of the man on the Number 37.