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Last Updated: Thursday, 20 May, 2004, 19:29 GMT 20:29 UK
Brown joins call for cheaper oil
Petrol lorry
The current surge is not just to do with consumption
UK Chancellor of the Exchequer Gordon Brown has urged the Opec oil cartel to lower the cost of crude oil as world prices bubble near record highs.

"It is crucial for the stability and prosperity of the world economy that Opec act now," Mr Brown said after meeting Opec's president in London.

The Group of Seven industrialised nations meet this weekend to discuss the impact of surging oil prices.

Prices have risen to 21-year highs, above $40 a barrel, in recent weeks.

Calls have been intensifying for Opec to boost the amount it produces to help ease sky-high energy prices.

But while Opec members warned that an increase may not bring down prices, the European Union said there was now an "urgent need" for more supply.

In London, the benchmark Brent Crude price climbed to $38.05 on Thursday, after rising 93 cents to close at $37.88 on Wednesday.

Economic fears

Earlier, the call for Opec to increase production had been led by EU commissioner Loyola de Palacio.

She said the global economy would bear "a very heavy cost" unless prices moderated.

A willingness to raise production - a suggestion made by Saudi Arabia and backed by the United Arab Emirates - was, she warned, "a question of credibility for Opec".

"If it does not come about, we will clearly see that Opec is not interested in oil price stability," said Ms de Palacio.

The problem today is not a crude oil problem... it is a gasoline market problem
Purnomo Yusgiantoro, Opec president
Gilles Gantelet, Ms de Palacio's spokesman, told the BBC's World Business Report that the call was not selfishly motivated.

"It is not the rich consumers that are suffering, but developing countries," he said.

UK Chancellor of the Exchequer Gordon Brown said he would urge Opec to raise output "to meet world output at the prices that they themselves have said are sustainable".

Time for a new basket?

However, Ali Rodriguez, head of Venezuela's state oil company, said the oil market was already well supplied and a production increase by Opec (of which Venezuela is a member) would have little effect.

Instead he blamed the current high prices on oil speculation and the situation in Iraq.

US President George W Bush also called on Opec to raise production but turned down a request from US airlines for America to stop its oil stockpiling.

Meanwhile, the Philippines suggested it and its Asian neighbours should have their own US-style strategic oil reserve to help alleviate what its energy secretary Vincent Perez called "near-crisis levels" of oil supply.

In theory, Opec has a target price of $22-28 a barrel for its "basket" - a sample of Opec members' oil prices.

But the basket price has been well above the band all this year, and Opec president Purnomo Yusgiantoro of Indonesia hinted that the band could be rethought.

"$22-28 a barrel was the price that we set in 2000 and now that price is eroded because of the inflation, because of the depreciation of the US dollar," he said.


In any case, he said, Opec members were already pumping 85-95% of capacity.

"The problem today is not a crude oil problem," he said. "It is a gasoline market problem."

Demand is being boosted by a number of factors, including the uncertainty in Iraq, vast demand from the fast-growing Chinese economy and low stocks in countries across the developed world who are choosing to stockpile because of tensions in the Middle East.

Opec's most recent figures show that its 10 members who are meant to cap production are already quota-busting to the tune of 2.1 million barrels a day above the 23.5 million target.

With that kind of over-production, experts say, only Saudi Arabia and the UAE have much headroom to pump more.

For other members, a quota rise would only legitimise their existing output.

The BBC's Evan Davies
"It's not just motorists and hauliers grumbling about prices, politicians are too"

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