Opec jitters send oil prices tumbling

Major producer Venezuela is running on empty

Oil prices have fallen sharply, amid increasing speculation that production cartel Opec is about to step up output.

Opec has called an emergency meeting on Sunday to discuss the current market situation.

Many predict that the meeting will result in an overall production quota increase of 1.5 million to 2 million barrels per day, roughly 2.5% of daily global oil consumption.

Some Opec members, notably leading producer Saudi Arabia, have been pushing for an increase to compensate for the effects of a crippling oil strike in Venezuela, an Opec member and a major supplier to the US.

Nervousness over the state of the market saw the benchmark Brent crude price drop by 48 cents to $28.85 a barrel, and US crude fell 53 cents to $30.55 on Wednesday.

Ups and downs

This week's falls, which have battered the share prices of leading oil firms, go some way to wiping out strong gains in the past few months.

World crude oil prices have jumped by $5-6 per barrel in the past two months, on concerns that the Venezuelan strike would lead to a supply crunch in the US.

More fundamentally, there are ongoing fears that any war against Iraq could severely disrupt supply from the Gulf.

Oil prices are currently above Opec's usual target price, and many in the cartel are concerned that persistently high prices could dampen the global economy, and therefore oil demand in the longer term.

Venezuela struggles

Meanwhile in Venezuela, the government said on Tuesday that it was restructuring state oil giant Petroleos de Venezuela (PDVSA), as the firm struggled to ride out the 37-day-old strike. .

Oil Minister Rafael Ramirez said PDVSA was aiming to cut costs at its headquarters in Caracas, seen as the main source of inefficiency.

Mr Ramirez said that 7,000 Caracas administrative employees were creating $1bn in unnecessary costs.

The government is using the strike, which aims to topple President Hugo Chavez from power, to regain control of PDVSA from dissident management.

Venezuela's oil exports, which account for some 13% of US demand, have been slashed to about 500,000 barrels per day from nearly 2.7 million in November.