Price of barrel of oil could rise to $50, despite Saudi promise

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The Independent Online

Saudi Arabia's pledge to ramp up oil production to ease record crude prices will not have the desired effect, analysts warn.

It promised on Friday that Opec would raise its production quota by more than 2 million barrels of oil per day from 23.5 million bpd. The cartel is holding an emergency meeting this weekend in Amsterdam.

But since Opec is already producing an estimated 3 million bpd above its quota and has limited spare capacity to pump more, analysts said that oil prices will remain high for the foreseeable future.

Kevin Norrish from Barclays Capital said that prices as high as $50 per barrel were a "distinct possibility".

Saudi Arabia, the largest oil producer in Opec, is the only member with significant spare capacity to carry out the promised increased production.

But Adam Sieminski from Deutsche Bank said that it could only add around 500,000 barrels per day: "The increase should be enough to cool the market, but will take no more than $5 a barrel off prices. The extra crude - mostly from Saudi Arabia - will be heavy crude which is harder to refine and less desirable."

Greater-than-expected demand, the activities of speculators and supply fears over Iraq and Venezuela would keep prices high, he said. Prices for a barrel of Brent closed at $38.06 on Friday.

Mr Norrish said that as Opec reached full capacity, the market would be even more sensitive to any disruption in supply, especially as demand increases before winter in the Western hemisphere.

"Looking forward to winter, there could be a big increase in the call for crude which could take Opec to full capacity. This would make the market vulnerable to the kind of supply problems which we have seen recently in Iraq.

"The wrong sort of headlines and $50 a barrel is a distinct possibility. It's not something we are forecasting, but it should not be ruled out." US Energy Secretary Spencer Abraham said in a speech at Chatham House in London on Friday that high oil prices could damage the global economy.