Oil price soars on Opec cutback

OIL prices hit their highest for nearly two months today as Opec members said they had agreed to cut the cartel's production by 1.5m barrels a day.

The price of Brent crude rose 88 cents from Thursday night's close in London to $20.88. It has bounced from about $18 since speculation started last month that Opec would make its fourth production cut of the year, but is still 13% lower than at the start of the year.

Now drivers are facing the prospect of a new rise in petrol prices, but it could be as small as 1p a litre. Rising petrol prices are sure to trigger accusations of profiteering by the oil giants, who in turn blame high taxation for pushing up costs.

The revised quotas are Opec's lowest in a decade, taking its total cutbacks to five million barrels, or 19%, in a year. About 25% of the group's capacity will now be idle.

The move follows an agreement by non-Opec producers, such as Russia, Norway and Mexico, to slice their combined daily output by 462,000 barrels.

Asked if another cut was likely, Saudi Arabia's oil minister Ali al-Naimi said: 'We will do what we have to do. What is important right now is to stabilise the market.'

Opec secretary-general Ali Rodriguez also sought to appease concerns that a global economic recovery could be hit by further rises in oil prices. 'The main objective of this cut is to stop the fall in prices. The principal factor affecting prices is the world economy and then there is the oversupply of oil, which we want to correct,' he said.

Opec said the cuts would last for six months from 1 January. But some analysts believe members would find it impossible to implement the new quotas so quickly, saying the full impact of the move may not be noticeable until March.

There are also doubts about whether non-Opec producers will make their promised cuts and how long they will leave them in place. Many dealers believe Russia will get around its new quotas, which relate to how much it can export rather than produce, by selling more of its crude as refined products, which would put downward pressure on the price.

They also point out that increased demand for heating oil in Russia at this time of year means the country's exports will fall by more than the 150,000 barrels a day it has promised to cut back, making its share of the deal effectively worthless.

Others believe Opec's efforts to restrict supply will be hit by a number of major new fields due to come on stream in non-Opec countries over the coming year. Oil prices hit a high of $30 in early September as the impact of its previous production cuts combined with tight stocks in the US in the lead up to winter. But the attacks of 11 September saw the price crash as demand forecasts were downgraded on the back of fears of a US recession.