KUWAIT CITY, 7 May 2004 — OPEC is not to blame for soaring oil prices which have hit 13-year highs as members pump up to maximum capacity, but the producers’ organization must do more to calm a nervous market, Gulf analysts say.

Unexpectedly strong economic growth in some industrialized nations as well as China and India, has driven demand for the crude to higher levels, pushing prices to around $40 a barrel in New York yesterday, the highest since 1990.

Fear of attacks on oil installations in the Middle East, prospects of shortages in gasoline in the United States and a drop in world inventories have all contributed to the hike. “The situation is highly explosive worldwide now, because of lingering fear that oil installations could be targeted by fresh attacks, endangering production,” said Kamel Al-Harami, a former Kuwaiti oil official.

“Normally, at this time of year, demand drops by at least two million barrels per day (bpd) for seasonal reasons, but the actual demand has in fact increased because of strong world economic growth,” Harami told AFP.

New York’s reference light sweet crude June contract climbed to as high as $39.97, within a whisker of the symbolic $40 threshold which has not been breached since October 1990 after Iraqi troops invaded Kuwait. It later traded three cents higher at $39.60.

In London the price of benchmark Brent North Sea crude oil for June delivery reached a new 13-year zenith of $37.20. In late deals prices traded 27 cents lower at $36.45 in choppy trading.

In Paris, the chief of the International Energy Agency, Claude Mandil, warned: “A new oil shock - that is to say prices which climb in coming weeks to the point of compromising a global economic recovery - is possible.”

British Prime Minister Tony Blair meanwhile said his government was taking a “very keen interest” in rising oil prices, which he said could have a damaging economic impact. “This is something we discuss, obviously, with allies and partners and the oil producing countries because we’ve learnt from history that it can have a severe impact on our economy, quite apart from the consumer,” he said.

The president of the European Central Bank, Jean-Claude Trichet, said rising oil prices “may pose an upside risk to price stability.” The Bank of England also cited rising commodities prices as one of the reasons behind its decision to hike interest rates yesterday.

“It is clear that the market is reacting to a demand-driven problem. OPEC is currently far exceeding production ceilings and most members are producing to almost maximum capacity,” Abdulwahab Abu-Dahesh, senior economist at Riyad Bank, said.

“The problem is not caused by OPEC. They are producing 2.5 million bpd above their output quota of 23.5 million bpd. The problem is that demand for oil spiked at a time when stocks were lower than average,” he told AFP.

The Organization of Petroleum Exporting Countries agreed in March to cut output by one million barrels per day to reduce total production to 23.5 million from April 1. But OPEC president, Indonesian Oil Minister Purnomo Yusgiantoro, insisted the organization was fighting high prices by exceeding its agreed production ceiling by 1.5 million barrels per day.

Bashir Bakheet, head of Riyadh-based Bakheet Financial Advisors, believes that “real” oil prices are not high if inflation rates and the price index of other commodities were taken into account. “Consumers cry about high prices appears to be totally political. Real oil prices are not high if factors of inflation and high increases of prices of internationally-traded commodities were considered,” Bakheet said.

Global demand for oil is estimated at 80 million-81 million bpd compared to forecasts at around 79 million barrels, Abu-Dahesh said.

The Center for Global Energy Studies (CGES) has raised its forecast for demand growth this year from 0.9 percent to 2.3 percent, and International Energy Agency (IEA) upgraded to 2.2 percent from 1.4 percent. But OPEC can certainly play a psychological role to ease market pressures, Harami said.

“They need to assure the world that they are maximizing output until markets stabilize. This will calm the market down,” Harami said. OPEC oil ministers are due to hold an informal meeting at an international oil summit in Amsterdam May 21 to study the market.