Opec oil chiefs looked set to agree to raise production levels this week, but analysts say the increase in production may not be enough to rein back soaring prices.
Saudi Arabia’s oil minister, Ali Naimi, said on Wednesday that total production would be increased by at least 700,000 barrels per day.
However, oil sector analysts said a rise of around one million barrels would be needed to calm prices, which have risen from $12 per barrel at the end of 1998 to $33 per barrel earlier this week.
The rise in the oil price has significantly affected UK industry’s raw materials costs, which rose at their fastest monthly rate for 21 years last month, according to the Office for National Statistics. It reported that the cost of raw materials rose by 4.5% during the month to stand 12.9% higher than a year ago.
Oil producers are concerned that sustained high prices could force consumers to seek alternative energy sources. Earlier on Wednesday, oil giant BP Amoco said that Opec countries would need to increase oil production significantly over the next two years to bring prices down from current levels. Speaking at the launch of the company’s annual statistical review of world energy, BP Amoco chief economist Peter Davies said that the expected growth in demand could not be met from non-Opec sources, which were still suffering from the cutbacks made over the last 18 months in response to the oil price collapse in 1998. `The message is that the market’s going to need more oil at some stage,’ said Davies.
Not all Opec members are thought to be keen on an increase in output. Only Saudi Arabia, the United Arab Emirates and Kuwait have the capacity to raise production levels. Producers such as Iran would have to accept a lower price per unit for the same volume of oil.
A rise in production by Opec members would have a knock-on effect, as non-Opec countries such as Mexico have raised their production levels, reducing prices further.
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