Oil prices up as OPEC production cuts predicted

Oil prices jumped today as dealers anticipated far-reaching cuts in production from OPEC members tomorrow.

Shares in both BP and Shell edged ahead as the price of Brent crude touched 20.63 US dollars per barrel, an increase of 7%.

OPEC - the Organisation of the Petroleum Exporting Countries - is expected to announce a cut in output of 1.5 million barrels a day at a meeting in Cairo.

Its move comes after confirmation that non-OPEC countries, such as Russia, will follow suit in an effort to revive the flagging oil price.

Non-OPEC members have agreed to reduce production by just over 460,000 barrels a day with Russia shaving output by 150,000 barrels.

The cuts are likely to take effect from January 1 and could be in place for at least six months.

OPEC indicated last month it wanted to lower production to bolster oil prices amid the global economic uncertainty following the September 11 atrocities.

Oil prices have tumbled to 16 dollars a barrel they hit a peak of $35 per barrel in November last year.

OPEC insisted, however, that non-OPEC members should also agree to cut backs to protect their market share they currently control 40% of world oil supply.

Doug Leggate, oil analyst at Commerzbank, said he doubted whether today’s rally was sustainable over the long-term.

‘‘It’s a relief rally, it’s not a major reaction and I think it will be a short-term situation,’’ he said.

He said that non-OPEC countries such as Russia and Angola were unlikely to support cuts for very long given their investment in increasing capacity.

‘‘Russia has agreed to cut production from the third quarter but its exports normally fall in the fourth and first quarters anyway,’’ he added.

‘‘As soon as there is any sign Russia is not toeing the line then the price war will start all over again.’’

Shares in BP and Shell rose by 2½p and 3½p to 533p and 479p respectively, the highest levels seen since the first week of the month.

Mr Leggate said however: ‘‘People should not use this as an opportunity to buy shares, it’s an opportunity to sell them into the rally.’’