Money: Oil gets pumped up

Click to follow
The Independent Online
AS AN investment opportunity, oil hardly boasts the glamour of a telecoms stock or an internet venture, writes Dan Gledhill. Yet anyone forking out $10 for a bargain barrel of Brent Crude at the start of the year would have enjoyed a 150 per cent return in the past 12 months. And all because of a rare outbreak of harmony within the Organisation of Petroleum Exporting Countries.

The situation that greeted Opec at the start of the year was doleful. A combination of warm winters and Asia's recession meant demand was unable to match Opec's record production levels. The obvious solution - to agree a cut in output quotas - had traditionally been scuppered by the mutual suspicion among Opec members that their rivals would not keep their word.

But the threat of a sub-$10 barrel of crude, which would have bankrupted Opec, concentrated minds and output reductions were agreed that to date have been well observed. This uncharacteristic obedience, coinciding with Asia's economic recovery, has been rewarded by such a large rally in the price of crude that it has more than offset the 70 per cent output cuts.

Nevertheless, no one seems to think the rally can continue. Oil inventories are at historically low levels. Any lower and there could be a serious shortage of oil in the event of a sudden cold snap or other shock. A resumption of internal strife within Opec could mean quota-busting begins even sooner.

That is not to say crude's rally has reached its peak. While national reserves of oil have been run down, industrial users have been stockpiling the black stuff in the fear of a millennium glitch - although this may not be enough to prevent an oil drought in early January.

But for anyone harbouring millennium paranoia, there is only one place to put your cash, and it isn't the internet.