Oil stays above $30 as Saudi plans to open pumps

Saudi Arabia announced yesterday that it would pump out more oil in order to bring the price towards a target of $25 a barrel, from the current level above $30. But there was little response to the news in the oil market.

Saudi Arabia announced yesterday that it would pump out more oil in order to bring the price towards a target of $25 a barrel, from the current level above $30. But there was little response to the news in the oil market.

The statement, days after the Organisation of Petroleum Exporting Countries (Opec) agreed on a 708,000 barrel a day production increase, came as soaring petrol prices turned into a big political headache on both sides of the Atlantic.

In the US, where the price at the pump has hit $2 a gallon in some mid-western states, John Cook, an official at the Energy Information Administration, said Opec would need to increase production by another 500,000-1,000,000 barrels a day in the final quarter of this year to rebuild US oil inventories to their normal winter level.

And Gordon Brown, the Chancellor, came under attack yesterday over the 20p increase in the price of petrol to 86p a litre over the past 15 months. Although most of the increase reflects higher crude prices, 61.7p out of the 86p retail price in the UK is accounted for by tax.

A senior Saudi official said the country would take swift action if the market price stayed too high in the coming weeks.

"Co-ordination and consultation among Opec and other producers will take place in order to increase production as soon as possible, in weeks," he added, saying Saudi Arabia had 2.3 million barrels a day spare capacity available at short notice.

The price of one month Brent futures, one of the main benchmarks in the market, fell 5 cents from Thursday's $30.80 close in reaction to the comments but later climbed to $30.85.

The price of oil has trebled in the past 18 months, and some economists warn this could send Britain into recession. Andrew Oswald, Professor of Economics at Warwick University, said any decline would come too late, and added that the impact could be severe. "The 'New Economy' runs on petrol and aviation fuel." Previous oil price shocks, in 1973-74, 1979-80 and 1990 were followed around 18 months later by sharp recessions.

Analysts believe the inflationary impact of oil prices could convince the European Central Bank to raise interest rates, although few expect the move as early as next week's meeting. Prospects for higher rates in the eurozone took the pound sharply lower yesterday. Its index against a range of currencies ended down 0.8 at 104.3. The Bank of England is on balance expected to leave UK rates unchanged next week.