Opec calls crisis meeting to cut production as oil price tumbles

The oil cartel Opec is considering an emergency cut in production to prevent a free-fall in the oil price, which yesterday tumbled to a four-month low at one point as the US-led Allied forces scored fresh gains in Iraq.

Opec is growing increasingly worried that a swift victory would eliminate fears of an oil shortage which, combined with continued economic weakness, could trigger fresh drops in prices. The 11-member group, which includes Iraq, will meet in Vienna on 24 April.

The Opec president, Abdullah al-Attiyah, Qatar's Minister of Energy and Industry, said: "My main worry is how to deal with the dramatic price drop. The market is full of oil, it's facing a glut not a shortage."

Oil prices have dropped by about a third over the last month as the launch of war against Iraq removed the uncertainty that had pushed the price of a barrel of crude to within a whisker of $40 in New York. Yesterday, the price almost broke through $27, later recovering to $28.07; while in London Brent crude prices fell more than a $1 to $23.40 at one point, the lowest level since November last year. The price rallied later to $24.52 a barrel.

Prices were also kept high by disruption to supplies from Venezuela and Nigeria but there were mounting hopes yesterday that both crises had been solved.

In Iraq, Allied forces now control 900 of the 950 oil wells in the southern Rumaila oil field, the country's largest.

Opec has set a price band of $22 to $28 for a basket of oil prices, which most recently was set at $25.38 a barrel.

Oil prices fell as low as $10 a barrel five years ago when Opec mis-timed a large expansion in output which coincided with the Asian financial crisis that threatened to push the whole world into recession.

Falling oil prices and further military gains combined to trigger a sharp surge on the world's major stock markets.

In London the FTSE 100 index closed up 121 points or 3.2 per cent to 3,936 ­ putting it within five points of showing a gain for the year for the first time.

On the Continent, markets gained as much as 5 per cent while on Wall Street the Dow Jones and the Nasdaq indexes were up about 2 per cent in early trade, but gains were wiped out as investors booked profits and turned their attention to the fragile US economy.

Stephen Jen, the chief currency economist at Morgan Stanley, said: "Positive progress in Iraq means stocks and the dollar get bought and bonds, oil and gold are being sold off."