Members of Opec, the oil cartel, were last night on the brink of a crucial deal to release extra crude oil supply into the market to calm the volatile price.
The Organisation of Petroleum Exporting Countries resumed talks yesterday after fruitless negotiations on Monday foundered on a disagreement over the volume of extra output.
Saudi Arabia, the largest producer, wants an extra 1.7 million barrels a day to be produced to supplement Opec's existing limit of 23 million. But more hawkish countries, led by Iran, the second largest producer, insist that any increase should be capped at 1.2 million.
Last night Venezuelan Oil Minister Ali Rodriguez told reporters Opec had reached an agreement but declined to disclose the details. "I believe we have an agreement, yes."
The talks were held against a background of mounting concern by US politicians at the trebling of Brent crude over the past year to nine-year highs above $31. But this has been seen as by countries such as Iran as interference by the US, the world's largest consumer of oil.
The price spike was driven by Opec's decision a year ago to cut output by 4.3 million barrels - an agreement that has been uncharacteristically adhered to by the 11 Opec members.
There were signs earlier yesterday that the Saudis were winning the argument after Algeria switched from the Iranian camp. Chakib Khelil, Algeria's oil minister, said: "I'd like to see 1.7 million barrels a day in the sense that it won't have a big impact on prices, will help the Asian economic recovery and rebuild stocks."
The price of Brent crude has fallen 16 per cent from a high of $31.02 on 8 March to around $26 on the back of moves by Saudi Arabia to raise output to calm the market.
Carl Weinberg, chief economist at High Frequency Economics in New York, said: "Our sources suggest that the name of the game will be to stabilise prices around $25, roughly where they are right now." He said prospects for even lower prices were quite strong as oil producers would be eager to raise output to take advantage of the strong price. "Oil will no longer be an inflation threat."
But Leo Drollas, chief economist at the Centre for Global Energy Studies, said an increase of 1.7 million barrels would not be sufficient to dampen world crude prices.
"If you take away the 1 million barrels overproduction that CGES estimated for February, then you only have an increase of 700,000 barrels which is not very much and is certainly not enough to bring down prices to the levels that the US is wanting," he told an oil conference.
The oil markets remained on tenterhooks yesterday ahead of an outcome to the Vienna meeting. The price of Brent crude for delivery in May was down 8 cents at $25.62 a barrel.
Alan Greenspan, the chairman of Federal Reserve, the body that sets US interest rates, said overnight on Monday that rising oil prices had not sparked general inflation.
"Currently we do not as yet - and I emphasise as yet - see any significant indication that crude oil price increases are in the process of embedding themselves in other areas of the economy and inflating the general price structure," he said.Reuse content