Brent crude surged to $20.11 - more than double its price less than six months ago - before retreating back below $20 later in the day. The rise in oil prices prompted a rally in oil shares. Royal Dutch Shell rose by more than 4 per cent to 497p while BP Amoco shares strengthened 15p to 1191p.
Sentiment was buoyed by comments from Opec oil ministers meeting in Vienna. The Iranian Oil Minister, Bijan Zanganeh, said that Opec should keep to the production cutback of two million barrels a day for at least the next eight months to support the oil price.
The Kuwaiti Oil Minister, Sheikh Saud Nasser al-Sabah, meanwhile said that the Opec producers were "fully complying" with the agreement in March. According to independent estimates, Opec is achieving 90 per cent compliance rates, compared with an expected rate of 75 per cent. Adherence to the tighter production quotas has helped ease the oil glut, which saw prices reach their lowest in a generation at the start of this year.
Oil prices have also been helped by larger than expected reductions in non-Opec production and increased demand, driven by continuing economic growth in the US and the recovery in a number of emerging economies. In a report earlier this week the influential, Centre for Global Energy Studies - a London-based think tank run by the former Saudi oil minister Sheikh Ahmed Yamani - said it expected world demand for oil to grow by 1.5 per cent this year, almost double last year's increase.
Standard & Poor yesterday revised upwards its assumptions about oil prices, forecasting that West Texas intermediate crude would average between $16 and $19 for the rest of this year and 2000 with Brent trading at a discount to those prices of $1 to $1.5.
Despite Opec's reassuring noises, doubts remain as to how many of its members will be able to resist the temptation to cash in on the surge in prices. "There's a feeling that if Brent is much above $20 going into their September meeting, then Opec might leak more oil onto the market," said Tony Machacek, an oil broker with Prudential Bache.
Last week Venezuela and Nigeria - two countries with a bad reputation for failing to abide by quotas - were forced to deny speculation that were planning to boost production.
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