10 September 2008 | Jake Kanter
The weakening world economy has driven down the demand for oil and caused the commodity's recent price drops, according to the Organisation of the Petroleum Exporting Countries (Opec).
Lower demand has seen the price of oil drop from a record high of over $140 (£79) a barrel in July to today's figure of $98 (£55). Opec said this fall was due to weak economic conditions, an easing in political tension in the Middle East and a strengthening of the US dollar. It added the falls indicated a "shift" in the market and a new downward pressure on prices.
During talks in Vienna at the annual Opec conference yesterday, action was taken to cut oil production because the market is "over supplied". The organisation will reduce production levels by 520,000 barrels a day, matching its September 2007 output figure of 28.8 million barrels per day.
Chakib Khelil, minister of energy and mines in Algeria and president of the conference, said in a statement: "While prices were rising, we were saying that this was due to the impact of non-fundamental factors. The issue of free-for-all speculation in the energy sector must be addressed comprehensively. There is too much at stake across the world for such high levels of volatility to be allowed to continue in this chaotic, damaging manner."
But John Hall, managing director of energy procurement consultancy John Hall Associates, said he was disappointed production had been lowered and was "not convinced" that orders had fallen. "Opec now has to follow the market closely as the Western regions move into a period of high demand, through the winter period, to monitor both output and demand and then re-adjust output as required."