Oil prices climb to yet another 10-year high

The protesting French truckers have a point: in France, as in Britain, the high cost of fuel at the pumps primarily reflects taxes imposed by revenue-greedy governments. But adding to their misery is the surge in crude oil prices engineered by Opec, the organisation of oil-producing countries.

The protesting French truckers have a point: in France, as in Britain, the high cost of fuel at the pumps primarily reflects taxes imposed by revenue-greedy governments. But adding to their misery is the surge in crude oil prices engineered by Opec, the organisation of oil-producing countries.

Oil is making news in a way it has not for a quarter of a century. Yesterday prices reached a 10-year high as futures in North Sea Brent oil, a traditional market benchmark, rose 55 cents to $33.56 a barrel.

This weekend's Opec ministerial meeting in Vienna is attracting attention reminiscent of the 1970s, when Sheikh Ahmed Zaki Yamani, then the Saudi oil minister, was a household name and the 11-nation cartel seemed to hold the world economy to ransom.

Things have not reached that pass yet. Despite a tripling of prices in 18 months, in real terms oil still costs less than half what it did in the late 1970s, immediately after the Islamic revolution in Iran. But the fear is growing that, once again, soaring energy prices will rekindle inflation and cause a general economic slowdown.

The reasons for the surge are clear. The US economy is humming and Europe is gathering pace, while the Asian slump that began with Thailand's financial crisis in 1997 is over. Oil stocks were depleted even before the seasonal pick-up in demand ahead of the northern hemisphere winter. For non-Americans the pain is magnified by the strength of the dollar, in which oil prices are denominated.

Little wonder, then, that after a slow start the production curbs initiated in 1998 by Opec - which produces most of the world's internationally traded oil - are now biting sharply.

Since falling below $10 at the end of 1998 the price of crude has more than tripled, but intense pressure from industrial consumer nations is unlikely to have much effect in Vienna on Sunday. Non-Opec producers such as Russia cannot increase production enough to make a difference, while most Opec members are only too happy to see their revenues grow. Saudi Arabia, the organisation's largest producer, has promised to raise output, but it is unwilling to raise it too much and open itself up to charges of subservience to America.

Instead many producer countries are siding with the French truckers: if petrol costs too much, then excessive state taxes, not Opec rapacity, are to blame.

But the present sellers' market will almost certainly not last. The last price boom brought marginal supplies on stream and encouraged the development of alternative energy sources, notably gas, and the same may happen again.

Technology has cut production costs in the North Sea from $25 a barrel to $10, and could push them lower still. High prices will stimulate the search for low-consumption technology, just as happened after the 1970s oil shock.