New hope of cuts pumps up oil price

OIL PRICES rallied on reports of a recent surge in demand from America and signs that non-Opec members are edging towards an agreement on production cuts. Official US figures showed demand for heating oil drained American reserves by 4% last week, their largest weekly fall since early in the year.

The figures boosted already-improved sentiment after Norway and Mexico made positive noises about cutting output levels to underpin the flagging oil price. Benchmark crude rose 22 cents to $18.97 a barrel, adding to Tuesday's 72-cents advance.

Opec last week agreed to cut its output by 1.5m barrels a day on condition that independent producers follow suit to the tune of 500,000 barrels to shore up prices.

But the world's second-biggest producer Russia still holds all the cards in the current Opec/non-Opec face-off. Today it rattled the markets by dropping its budget forecast for the price of oil next year to between $14.50 and $18.50 a barrel. GNI analyst Lawrence Eagles said Russia could be signalling that its economy is capable of surviving with oil at these levels, effectively giving its OK to a price war.

The British Government, which has given responsibility for Britain's two million barrels per day production to major oil companies, has hinted it would like to see lower prices to help revive the flagging world economy, but not a total price collapse.