Opec warns more oil won't calm 'out of control' price

Opec ministers warned yesterday the price of oil was "out of control" as members of the production cartel admitted that a proposed 500,000 barrels a day increase in its output would not be enough to lower prices.

Opec ministers warned yesterday the price of oil was "out of control" as members of the production cartel admitted that a proposed 500,000 barrels a day increase in its output would not be enough to lower prices.

Analysts said hedge funds and other financial speculators had taken increasingly aggressive long positions on the oil markets this year, driving prices higher than the fundamentals justified. Seth Kleinman, of the US consultancy PFC Energy, said: "The short-term fundamentals are being overwhelmed by speculative moves from funds."

That is why, analysts said, reaction was muted to the 500,000 barrels output increase, proposed by Saudi Arabia on Monday. The oil price eased just 23 cents at $54.72 a barrel in New York on Monday and was down a further 20 cents yesterday afternoon.

Sharada Selvanathan, an economist at BNP Paribas, said that compared with last October - when the oil price hit a record of $55.67 in New York - the supply/demand situation now was nowhere near as tight and yet prices were almost as high. "The issue that the funds are looking at is supply for the third and fourth quarter [of this year]. The view of many Opec members is there is enough supply for now," Ms Selvanathan said.

Opec meets in Iran today, when some members will voice their disagreement with the Saudi plan or call for any increase in supply to be delayed.

The Algerian energy minister Chakib Khelil said in Isfahan: "We could do a goodwill gesture but it doesn't mean anything in terms of reducing the price. We can add barrels but that won't stabilise prices. Economic growth has to slow down."

As well as unexpectedly robust global economic growth, particularly in the US and China, Opec members say speculative investors, seeking to escape a weak dollar, are behind the oil price spike. Qatar's oil minister Abdullah al-Attiyah said: "Opec has done all it could do. This is out of control of Opec."

Opec supplies 40 per cent of global oil production. The cartel's current output ceiling is 27 million barrels a day. Although oil stocks are currently rising Saudi Arabia is seeking to convince other Opec countries that a bigger stockpile cushion is needed. The Saudi oil minister Ali al-Naimi said: "When you look at projected demand especially in the fourth quarter ... we see a substantial rise between the third and fourth quarter to the tune of two plus million bpd [barrels per day] ... therefore we believe additional crude is needed."

Mohammad-Ali Zainy, of the Centre For Global Energy Studies, said the cartel is already "cheating" by pumping out between 500,000 and 700,000 barrels a day over its 27 million limit.