Oil prices edged further below $40 on Friday after Opec’s decision to boost output, but analysts remained sceptical about the effectiveness of the cartel’s move.
The German economy minister, Wolfgang Clement, welcomed the drop in prices and said he hoped they would continue to fall to around $28 a barrel. Crude oil prices have risen by over 20% since the start of the year and are now well above Opec’s stated price band of $22-$28.
Clement said he was not worried that high oil prices could tip the world economy into recession, but said recent prices of $40 a barrel were ”irrational” and were caused by speculation.
”It will go down … we hope to $28 [per barrel],” Clement said during a two-day visit to non-Opec producer Norway. ”The world economy is booming, and I think it is resilient enough to cope with the level of oil prices we have had [but] $40 is really speculative and an irrationally high price.”
However, analysts thought it unlikely that Opec’s decision to boost output would have any significant impact, as the cartel is already exceeding quota limits. At its meeting in Beirut, Opec decided to raise formal output limits by 2-million barrels a day from July 1 and another 500 000 barrels from August. Ministers also set another meeting for July 21, but the deal makes little difference to actual supplies, as the cartel is already pumping above the new formal limits of 25,5-million barrels a day.
”The sceptics will continue to doubt whether there will be any real increase in production given the quota-busting that was already happening,” said Deutsche Bank in a note.
In trading today, US light crude fell 45 cents to $38,8 a barrel, following an 80-cent drop on Thursday when Opec announced it agreement to boost production. a two-stage. Brent crude was down 41 cents at $35,9 a barrel in London.
Oil prices have risen sharply this year through a combination of strong demand from the US and China, speculation on the part of hedge funds and worries about terrorist threats in Saudi Arabia, where 22 people were killed last weekend in an attack in the oil city of Khobar.
In remarks that will do little to calm such concerns, al-Qaeda’s leader in Saudi Arabia praised Saturday’s attack in a statement on an Islamist website.
”The operation in Khobar was a new victory which God bestowed upon the mojahedin and which put the Saudi government in a deep crisis,” Abdulaziz al-Muqrin said. ”It took the price to its highest levels of over $42, while Saudi Arabia is committed to America’s prosperity by providing oil at the cheapest prices.” – Guardian Unlimited Â