Oil price fall threatens Opec deal

Opec oil producers have driven up world price

The cost of a barrel of oil has continued to fall, putting in question an agreement among oil producing states to pump an extra 500,000 barrels a day to help moderate prices.

The fall has now taken the price below the level which would trigger the output increase, putting that decision in question.

The plan by the Organisation of Petroleum Exporting Countries (Opec) was in response to worldwide concern over the escalating price of a barrel of crude, which has shot up from $10 to $30 in just 18 months.

Pump prices have soared

Last year, oil exporters cut their output in order to boost prices, but some members have become concerned that the oil price has now gone too high.

Saudi Arabia, the world's biggest oil exporter, said it wanted to pump more oil to bring prices down to nearer Opec's target of $25 a barrel.

In a compromise, Opec agreed to increase output if the price of a "basket" of crude remained above $28 a barrel for 20 consecutive days.

With the price having been above that level since early July, that would mean it would have to remain so until next week - but after the announcement the price has already dropped as low as $27.46.

According to Iran's oil minister, Bijan Zanganeh, that means the agreement is not valid.

Opec splits

However, the Saudis might still decide to act on their own to boost production, as they originally said they were going to do.

Or Opec might have to call an emergency meeting to discuss what to do.

Opec was hoping to avoid calling such a gathering, which would highlight the differences between the Gulf states, who have a surplus of crude oil they are willing to pump, and other Opec members like Iran and Algeria who want to keep prices high.

On Monday, Opec president Ali Rodriguez told member countries to prepare to release 500,000 barrels per day.

Inflationary pressures

At about $30, the price of oil has been sparking concerns over inflation around the world by pushing up the cost of producing goods.

In the UK, for example, factory gate prices leapt by 0.4% in June to an annual inflation rate of 2.9%.

And the rising cost of oil feeding through to petrol prices pushed the headline inflation rate in the UK up to 3.3% in June - its highest for nearly two years.

In the UK, the price of a litre of petrol averaged 84p in June, compared to 80p in May and 70p a year ago.

In the US, the cost of a gallon of gasoline has reached $2 in some states, triggering a major political row.