Opec to consider further supply cuts as oil price rises again

Click to follow
The Independent Online

The oil price rose yesterday on the strength of the Chinese interest rate cut, Europe's economic stimulus plan and the potential of yet another cut in supply in the near future.

Brent Crude for December delivery rose as much as $3 to $53.35 in afternoon trading, while Light Sweet Crude traded in New York almost $1 up at $51.69.

The 13-strong Organisation of the Petroleum Exporting Countries (Opec), which controls 40 per cent of the world's oil supply, is holding an extraordinary meeting in Cairo on Saturday, to consider further cuts in supply. And yesterday Russia – which is not a member – intimated it too could cut production. The Russian Energy Minister Sergei Shmatko said Moscow will co-ordinate with the cartel on both supply issues and investment programmes.

Opec has already cut production twice this autumn, taking a total of 2 million barrels out of daily production in an attempt to stabilise the oil price. Oil has lost more than two-thirds since July's record high of $147 per barrel. But prices continued to fall and last week dropped below $50 for the first time since 2005. Outspoken Opec members, such as Venezuela, have already publicly advocated further cuts.

Looming recession, and particularly falling Chinese growth, have been major factors in depressing prices. Earlier this month, the International Energy Agency revised downwards global demand estimates for both 2008 and 2009, by 240,000 and 440,000 barrels per day respectively. Publication of the new forecasts immediately wiped $5 off the oil price, sending it to a 12-month low.

But experts say that the fluctuating price is not only a response to changes in the fundamentals of supply and demand but is being exaggerated by the fear factor and by speculation.

Russia produced 3.7 billion barrels of oil in 2007.