Sheik out

9 February 2004

Everything looks as though it is going well for the oil cartel. Crude prices are high, and markets are healthy. But looks are deceiving, and the group is not in the rude health it might appear to be in.

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The Organisation of Petroleum Exporting Countries meets in Algeria this week to discuss output quotas with Brent crude trading at $29 a barrel, not far from the peaks it reached prior to the Iraq invasion.

Crude prices have been driven up by a severe cold spell in the United States and heavy buying of oil futures contracts by investment funds. OPEC, which controls half the world's trade, has responded to high oil prices by pumping some 1.75m barrels per day above its official quota of 24.5m bpd.

Only a few months ago, OPEC officials had said the group might cut output to meet falling demand once winter is over. More recently, however, OPEC has hinted that the extra oil supplies required to replenish plunging US inventories – which are at a 28year low – may obviate the need for a cut.

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