After the biggest decline in crude oil prices for a decade, analysts are warning there may be further significant falls to come.
On Monday, the price of a barrel of Brent Crude plunged 15 per cent, and City and Wall Street experts are predicting there may be another 10 per cent fall over coming weeks.
A major contributor is the prevailing fear that a global recession will stunt demand, particularly for refined products such as jet fuel. But many analysts say the current behaviour of Opec is a more serious problem. The 11-member organisation, which is dominated by Saudi Arabia, held its regular meeting but decided against making a cut in production.
Although the diplomacy of this move was well-intentioned, it is expected to be harmful to the main oil-producing countries. The logic of the move was clear: the US is by far Opec's best customer, and high oil will not help it scramble out of recession.
Crude's fall took it below the $22-$28 (£15-£16) target price band that Opec bases its decisions on. Opec rules should have made a production cut straightforward, but the cartel held off.
For political purposes, Opec members are expected to bear the crude price falling below its target band. The longer it holds out, however, the further crude could fall. The situation has provoked one energy economist to suggest to Opec that it change the way it manages oil prices in the light of the 11 September attacks.
Robert Mabro, director of the Oxford Institute of Energy Studies, told Opec ministers there may be better options than the semi-formal agreement now used, and abused, by the members. Mr Mabro said an alternative might be to make the price band mechanism into a binding agreement – to turn production decisions into a properly automatic response.
"Because of the emotions, the political climate, the uncertainty, Opec cannot use the production instrument as it has used it in the past two years," said Mr Mabro. He added that such a mechanism would protect Opec politically as it would take production decisions out of the diplomatic limelight.
This month's events have created other ripples in the oil-producing world. On Friday, Libya's National Oil Corporation said it would meet with large US oil firms including Conoco and Amerada Hess.
Those companies are currently banned from operating there by the restrictions of Washington's Iran Libya Sanctions Act.Reuse content