Oil price surges as Opec summit hopes fade

The oil price surged back above $31 a barrel yesterday after an unexpected fall in US stocks compounded fears that a high-profile summit of the oil cartel Opec will do little to ease the pressure.

The oil price surged back above $31 a barrel yesterday after an unexpected fall in US stocks compounded fears that a high-profile summit of the oil cartel Opec will do little to ease the pressure.

For the first time in a quarter of a century, the sheikhs, emirs, crown princes and presidents of the 11 nations responsible for 40 per cent of world oil production yesterday sat down around a table to discuss the future of their organisation and the energy market in general.

But the high-profile two-day summit in Caracas, Venezuela, will not put a single additional barrel on the market despite the fact that Western consumers are faced with the highest crude oil prices since the 1991 Gulf War.

Opec president and Venezuelan energy minister, Ali Rodriguez, has made it clear Opec will first observe how the market reacts to the 800,000-barrel a day production increase due to take effect next week. In addition, an extra 1 million barrels of oil from US strategic reserves comes on stream next month.

If any further adjustments are necessary they will be made at the Opec ministerial meeting scheduled for 12 November. Lawrence Eagles, an analyst at GNI Research in London, said: "I am not expecting anything out of Caracas. I'm expecting a big back-slapping exercise."

Yesterday, the price of a barrel of Brent crude for November delivery jumped as much as 2.3 per cent, or 75 cents, to $31.13, about a dollar below its price before the US announced plans last Friday to open the taps on 30 million barrels of its reserves. It later fell back below $31.

Yesterday's price fall was triggered by a report from the American Petroleum Institute showing US stocks fell 2.24 million barrels last week compared with forecasts of a 1.5 million increase.

The price was further supported by statements by the UK, Luxembourg and Germany that they would not support the use of European strategic reserves to increase supply. European Union ministers are due to discuss using state inventories on Friday.

Despite the posturing by both sides, no one is talking of a return to the confrontational stance of the 1970s, when oil was explicitly employed as a political weapon.

"There is no confrontation," said Venezuela's President Hugo Chavez, the summit's host and the driving force behind Opec's reinvigoration after years in the doldrums. "We have listened to the calls for dialogue - that is the way forward."

Mr Chavez spoke of a possible meeting between Opec and the Group of Seven industrialised nations, which could take place in November.

The summit itself will discuss a wide number of topics, ranging from new energy sources and environmental issues to enhanced economic relations among member nations, and is expected to result in the signing today of the so-called "Declaration of Caracas".

President Chavez has broadened the agenda to include issues such as poverty reduction, the debt question and the creation of an Opec bank. Venezuela is also pushing for the formal adoption of a price-band mechanism, with a view to stabilising the price of a barrel of crude in the US$22-28 range.

Meanwhile the International Energy Agency, which forecasts the market for the major industrialised economies, called its own extraordinary meeting for next Wednesday to discuss the oil price.