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Last Updated: Friday, 4 June, 2004, 12:02 GMT 13:02 UK
Oil slips further after Opec deal
A Saudi oil worker
Oil prices have continued to fall in the wake of Thursday's move by producers' cartel Opec to boost quotas.

The mainly Middle Eastern group agreed to raise quotas by 2 million barrels a day from July and another 500,000 a day from August.

On Friday, the price of a barrel of US-traded oil fell 79 cents to $38.49, extending Thursday's 68-cent drop.

But analysts said falls were mostly due to bigger US stockpiles, and warned the "fear factor" would remain important.

"Oil prices have soared with heightened security concerns in the Middle East, exacerbated by rising demand forecasts and disappointing non-Opec production," said a Standard Chartered research note.

"Opec's decision to raise quotas... will provide some relief but it is unlikely to bring prices substantially lower."

Current over-production also means that the increased quotas may have little practical effect - although Saudi Arabia and the United Arab Emirates have already promised a 1.2 million barrel a day boost.

In London, Brent crude was down 63 cents at $35.77 late on Friday afternoon, extending Thursday's 46-cent drop.

Warm response

Although some had hoped for a bigger move from Opec, the response was generally positive.

chart showing oil production of Opec member states
In the UK, Chancellor Gordon Brown said he welcomed the deal - although he would "press Opec both on meeting the production target and on the case for raising the target higher".

US Treasury Secretary John Snow, meanwhile, also welcomed the production increase, calling it "encouraging".

Oil consuming countries would like prices lower, not least because the rise is fuelling fears in some quarters of resurgent inflation.

World oil prices are up about 25% since the end of last year.

'Fear factor'

Opec's 11 member states, eight of which are in the Middle East, supply about a third of the world's oil.

OIL PRICE AT RECORD HIGH
US-traded crude reached $42.45 a barrel
Terror attacks created fears of disruption of supplies from Saudi Arabia
Saudi Arabia is world's biggest oil producer with output of about 9 million barrels a day
Opec total output is about 26 million barrels a day - about a third of the world total

But experts say that the days when the cartel could call the shots on oil prices are long past.

For one thing, most Opec producers are already pumping as much as they can, with only Saudi Arabia, Kuwait and the UAE having much capacity to spare.

For another, high demand from the US and from a fast-growing China are partly responsible for the rise in prices far above the $22-28 a barrel which Opec has had as its target.

And the "fear factor", as Qatar's oil minister put it, is a key element.

Some experts estimate that worries about terrorism may be adding as much as $10 to the price of a barrel.

The attack which killed 22 people in the Saudi Arabian oil town of Khobar over the weekend helped cement the concerns, pushing US prices to record highs of $42.45 a barrel on Tuesday.

And continued targeting of Iraqi oil facilities is an ongoing part of worries in the oil business.


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