Oil hits record high after Opec fails to calm market

Oil hit a record high of nearly $79 a barrel on Wednesday, after the Organisation of the Petroleum Exporting Countries’s (Opec) modest output increase failed to allay winter supply concerns and ahead of United States inventory data.

US light crude for October delivery set a record high of $78,99 a barrel, beating the previous record of $78,77 reached on August 1.

US crude was 55 cents higher at $78,78 a barrel by 2.16pm GMT. London Brent crude was up 39 cents at $76,77.

Opec agreed to raise crude output by 500 000 barrels per day (bpd) from November 1 at its meeting in Vienna on Tuesday, in a gesture to consumer nations concerned about the economic impact of high oil prices and rapidly diminishing fuel stocks.

“The Opec outcome was not enough of a shocker to turn around a market that likes to read extremes,” said Olivier Jakob, of oil consultancy Petromatrix.

The new output deal from Opec will reverse most of the 1,7-million barrels per day of cuts agreed by the group since October 2006.

The 10 countries bound by that agreement were already pumping almost one million bpd above their nominal ceiling.

“It legitimises the excess production that was there relative to Opec’s previous implied quota and not much more,” said Harry Tchilinguirian, senior oil-market analyst at BNP Paribas. “So, anything short of one million barrels a day looking ahead to winter balances would not be enough.”

Opec had to balance consumers’ concerns about shrinking stocks of oil ahead of winter with fears of an economic slowdown in the US that could dampen oil demand.

Opec member Iraq is excluded from the production agreement, as is new member Angola.

“We think that Opec has been somewhat less aggressive in its additional supply decision as it waits to see if Iraq can sustain a 250 000-barrel-per-day flow from the north,” Jakob said.

The International Energy Agency, which has been urging Opec to pump more oil, predicted world oil demand will grow more slowly than expected in the last quarter of 2007 and next year. The IEA’s latest monthly report, published on Wednesday, also suggested high prices might further curb consumption.

The agency, adviser to 26 industrialised countries, said it is too early to assess the effects of fallout from the mortgage crisis in the US on its economy.

The latest snapshot of US oil inventories is due later on Wednesday, when the Energy Information Administration publishes weekly data.

Crude oil stocks are likely to have fallen by 2,4-million barrels last week, according to a Reuters survey of industry analysts. — Reuters

Reporting by Annika Breidhardt and Maryelle Demongeot

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