Oil price soars to new high

Posted in Other | 02-Jun-04 | Author: Larry Elliott| Source: Guardian

Fear of political backlash as cost of petrol set to rise over summer

The United States and Britain were last night putting pressure on the oil cartel Opec to lift production quotas at its meeting in Beirut tomorrow as the west's leading countries took fright at an economic and political backlash from record oil prices.

Some garages in the UK were charging £4 a gallon for petrol yesterday even before the shockwaves from the weekend terrorist attack in Saudi Arabia sent the cost of crude to a record $42 a barrel in New York.

The UK Petrol Retailers' Association (PRA) predicted a summer of rising prices on the forecourt and urged the chancellor, Gordon Brown, to rescind a 2p a litre increase in fuel duty planned for September.

"This is going to be a miserable summer for prices," said Ray Holloway, director of the PRA, adding that motorists could expect a fresh rise of between 2p to 3p a litre over the next 10 days. The average price of unleaded now is 82p a litre, or around £3.70 a gallon.

Mr Holloway criticised the chancellor for failing to take steps to calm the market. "With the fuel protesters flexing their muscles, it would have been politically expedient to have said a few calming words."

A Treasury spokesman refused to be drawn on the proposed rise, but said the chancellor was in personal contact with Opec oil ministers to lobby strongly for an increase in production quotas.

"What we are worried about is that an oil price of $40 a barrel takes on the air of normality," said a Treasury spokesman. "If there is a perceived threat of the price going to $50 a barrel, then there is a chance that $40 a barrel won't look too bad."

Washington was also keeping up the pressure on pro-US members of Opec ahead of tomorrow's meeting. Colin Powell, the US secretary of state, said he was confident that Saudi Arabia could provide a secure oil supply despite the killing of 22 civilians by suspected al-Qaida militants in the kingdom.

"I have no reason to doubt their ability to do that. They are doing it now and they are making a commitment to do more and [at] the Opec meetings later this week [we'll] see what the international oil community is prepared to do," Mr Powell said. "I have confidence in the ability of the Saudi Arabians to continue to provide a secure flow of oil products."

Opec ministers are likely to sanction an increase in production this week, but ministers said they feared the expected deal would fail to have an immediate impact on global prices, given heightened security concerns, the strong demand for crude and a lack of refining capacity in the US.

The Saudi oil minister, Ali al-Naimi, arriving in Beirut, said Opec would "do its best to make the fundamentals right", but his cartel counterparts warned that making sure that supply met demand might not be enough to calm fears now beginning to border on panic in world oil markets.

"A supply increase will not help lower prices," said the Iranian oil minister, Bijan Zanganeh.

Opec analyst Geoff Pyne said: "Opec only has limited scope to do anything about the price. There is no real shortage of supply so the best they can hope for is to have some psychological impact."

Analysts said Opec production was already running at least 2.3m barrels above the formal quota limits of 23.5m barrels a day so any increase in production allocations would only legitimise existing output.

Mr Holloway said it was impossible to forecast just how high petrol prices would go.

He added: "If the price of crude goes up, prices at the pumps go up. But it's very difficult to say what the price could go up to. Certainly, motorists in rural areas will face the highest prices.

"What we are seeing is uncertainty on top of an already volatile market."