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Financial Times: Oil record unlikely to change Opec view

By Javier Blas and Ed Crooks in Vienna
Published: March 4 2008 01:04 | Last updated: March 4 2008 01:04

Oil hit a record $103.95 a barrel on Monday, as the dollar plunged and expectations hardened that Opec ministers will leave production levels unchanged when they meet in Vienna on Wednesday.

On some measures, oil closed higher in inflation-adjusted terms than its previous peak in April 1980, at the height of the second great oil shock. Then, oil prices surged to a level which equates to $103.76 a barrel in 2008 dollars.

Western majors feel the squeeze – Jan-31 In recent days, ministers from the Organisation of the Petroleum Exporting Countries have played down the idea that record prices should force their group to raise production, blaming financial investors for pushing up prices and arguing that oil has been rising because of the falling dollar.

Shokri Ghanem, Libya’s oil minister, said as he arrived for the meeting: “The world has changed. The dollar is down. $100 is not what it used to be.”

Oil rose more than $2 a barrel to $103.95 during afternoon trading in Europe , following a closely watched manufacturing survey that suggested a weakening of the US economy and triggered a further fall in the dollar. Oil and the dollar have tended to move in opposite directions because commodities are seen by some investors as a haven from weakness in the US.

Some Opec members fear that oil prices will damage the world economy. Prices surging above $100 a barrel could forge a consensus for a symbolic output increase, some analysts suggest. But others, such as Iran and Venezuela, are pushing for an output cut to support the price later in the year when demand is expected to dip.

David Kirsch, of the Washington-based consultants PFC Energy, said a cut in official output seemed unlikely, as openly defending $100 a barrel could be politically damaging for Opec.

Instead, Opec could agree to covert cuts. Saudi Arabia, the biggest oil producer, last month produced 9.2m barrels per day – 300,000 b/d above its official Opec limit. The kingdom could return to that limit in coming weeks.

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