No respite as oil price climbs to a new high

Opec Response

The cost of crude oil surged to a fresh 10-year high yesterday, shattering hopes that Sunday's deal by the world's major producers to pump out more would bring down the price.

The cost of crude oil surged to a fresh 10-year high yesterday, shattering hopes that Sunday's deal by the world's major producers to pump out more would bring down the price.

The cost of a barrel of Brent crude, a benchmark price, hit $34 (just under £24), above its level before the Organisation of Petroleum Exporting Countries held its high-profile meeting in Vienna.

Plans by Opec to increase output by 800,000 barrels a day drew only lukewarm praise from governments of the consuming countries. The West, which is facing historic shortages of oil stocks and public protests at the soaring cost of petrol, had hoped the 11 oil-rich nations would add an extra million barrels a day to world supply.

Economists warned that the latest increase could be too little, too late to prevent high oil prices slowing economic growth and raising inflation - a mixture that caused a global recession two decades ago.

Oil and petrol are vital resources for industry and the rising cost has already started to feed through to levels of inflation in the United States, the United Kingdom and Europe. Meanwhile the world's major economic zones - North America, Europe and South-east Asia - have embarked on a recovery that will lead to growing demand for oil.

Market analysts said it could be months before prices ease down to the $20-$25 a barrel sought by the US and Europe. The price of oil has trebled from under $10 a barrel 18 months ago as Opec, which controls 40 per cent of world supply, slowly tightened the taps.

The earlier slump in the price discouraged Western oilfield operators and refineries from investing in new equipment, which means it will take longer for the benefit of the extra oil supply to feed through to the forecourt. Gary Ross, of the US consultants Pira, said: "Prices will stay high this winter because this [deal] will do nothing to solve the shortage."

The US, the world's biggest consumer, called Opec's latest deal "a step in the right direction", but India and Germany said that the hike was not enough. Analysts said that the increase, the equivalent of 1 per cent of world supply, would not help the West rebuild its stocks.

The International Energy Agency (IEA), which monitors the oil market for Western economies, warned continued cutbacks on production could have "unforeseen side-effects".

"Continuing high prices and extreme market volatility indicate that the market is fundamentally unstable," it said. "It can have profound and unforeseen side-effects, including market instability and distortion of economic behaviour."

It might also include global recession as rising oil prices could bring economic growth to a halt while fuelling inflation - feeding through to higher wage demands that would further squeeze levels of profit in business. Many Opec countries cannot pump extra oil, as they are already close to capacity.

Klaus Rehaag, head of the IEA's oil market division, said: "Given what they're already producing, it's not necessarily going to put a huge amount of fresh oil into the market."