Oil prices slide on Opec hint of further increase in output

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The Independent Online

Oil prices fell sharply on both sides of the Atlantic yesterday as US inventories hovered at three-year highs and Opec hinted at boosting output again next month.

Oil prices fell sharply on both sides of the Atlantic yesterday as US inventories hovered at three-year highs and Opec hinted at boosting output again next month.

The prices of both US and Brent crude dropped by more than a dollar, relieving some of the concern of the impact oil prices were having on the world economy.

US light crude was down $1.02 at $52.30 a barrel, 9 per cent off last week's record high of $58.28, while London Brent crude was down $1.11 to $51.79.

Prices have fallen for six successive trading sessions since figures last week showed that crude oil inventories in the US, the world's largest energy consuming country, were at the highest level since June 2002.

There was further downward pressure on prices after the head of Opec, Sheikh Ahmad al-Fahd al-Sabah, who is also Kuwait's oil minister, said the producers' cartel was on track to boost supplies to world markets by 500,000 barrels per day next month. "I believe, as Kuwait, the market will dictate an extra 500,000 [in May] in preparation for the third quarter," Sheikh Ahmad told Reuters. "This will be a hike in actual production."

Asked about comments by Opec's acting secretary-general Adnan Shihab-Eldin, that the cartel is eyeing $50 as a potential ceiling for oil prices, Sheikh Ahmad said: "This issue is still under study, we can't rush things ... But what Dr Adnan has said is similar to what is being suggested by some European Union members ... that the ceiling should be wide, from $25 to $50. There is no consensus up to now."

Some in Opec, particularly Saudi Arabia and fellow Gulf producers, are keen to boost output now to encourage stockbuilding in the coming months to avoid a potential supply crunch and price spike late this year.

Last week the International Monetary Fund warned that high oil prices were a "permanent shock" to the world. Raghuram Rajan, the IMF's chief economist, said oil was set to stay at $39-$56 a barrel in today's money for much of the next 25 years.

Rising oil prices are expected to prompt the IMF to cut its growth forecasts when it produces its six-monthly world economic outlook tomorrow.

Earlier this month Goldman Sachs warned that the oil market was entering a "super-spike" period that could see the price of oil shoot up to $105 a barrel. The Wall Street bank said its new forecast could even prove conservative "if there is a supply disruption in a major oil-exporting country". It raised its "super-spike" forecast range for oil from $50-$80 a barrel to $50-$105, as a result of the continuing strength of demand for oil, especially from the US and China.

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