View from City Road: New era for oil prices

With VAT looming on domestic fuel, Opec's antics may not provide any immediate relief for householders. Heating oil prices have been reasonably stable this year despite a steady decline in crude prices, and the immediate outlook will have more to do with the weather than what the cartel gets up to.

Petrol prices are also likely to show only a delayed reaction, but it will happen in the end, courtesy of intense competition on the forecourt.

Oil prices are entering a new era. Opec's decision this week to leave its output unchanged at 24.5 million barrels per day suggests the cartel's 12 members are finally accepting market realities.

Prices reacted swiftly. After plunging to five-year lows of dollars 14.56 on Thursday, they stabilised on Friday. But they could face a rough ride on Monday, when US energy markets reopen after the Thursday and Friday Thanksgiving holidays.

This year, oil prices have slumped by 20 per cent, from dollars 18 a barrel. Sluggish consumption from recession-bound industrial countries (it will decline this year for the first time in a decade), stepped-up production from non- Opec producers such as Britain and Norway, and high stocks in consuming countries have taken their toll.

The risk that UN sanctions on Iraqi exports will be lifted is a constant market worry for Opec. Most members have been pumping close to capacity, overproducing the September target by 300,000 bpd.

Any revival in crude oil prices late next year will be slow at best, and prices may be destined to fluctuate around dollars 14 for some time to come.