Only time will tell whether the increase in production agreed by the Organisation for Petroleum Exporting Countries will be enough to bring about a sustained fall in oil prices on world markets. The increase agreed was 800,000 barrels a day, a 3 per cent rise on current production levels, most of which will come from Saudi Arabia, which is the OPEC member with the most spare capacity. The OPEC target is to reduce the price of a barrel of crude oil to between $23 and $28 a barrel, from the 10-year highs of $35 reached last week.
The level of increase agreed by OPEC is a continuation of its traditional cautious approach, but does signal a genuine attempt to secure some decline in the price of crude oil. It is the third increase agreed this year and another production rise is possible under its current rules, if prices do not fall back by late October. The OPEC ministers will meet in early November to review the position.
The view among market analysts yesterday was that crude prices will probably ease slowly from their highs of last week, but that a sustained fall towards the target level of around $25 a barrel may not happen until next year. Given the complex supply and demand position in the oil market, such forecasts can only be tentative. A key complicating factor is that supplies of refined product held in the main industrialised economies are at a low level, heading into the high demand winter period in the Northern hemisphere. This means that the price to consumers of products such as petrol and home heating oil may remain high for some time, even if crude oil prices start to ease.
The OPEC decision was made as protests were being lifted in France, after the government there agreed concessions to protesting hauliers. This caused some disquiet at a meeting of EU finance ministers in Versailles, where the Minister for Finance, Mr McCreevy, was believed to have been among those arguing against selective tax reductions to combat higher fuel prices. This will not please Irish hauliers, who are threatening a campaign of protest about rising diesel prices unless the Government grants concessions to them. Similar campaigns are planned or underway in a number of other EU countries.
Certainly hauliers here would be ill-advised to undertake protests which caused widespread disruption; doing so would risk alienating the public and would back the Government into a corner - much the same as happened when the Irish Locomotive Drivers' Association disrupted rail services. That said, they are of course entitled to put their arguments to the Government and to have them examined.
There is a case to consider selective excise duty reductions as part of a general anti-inflationary package. But clearly the Government cannot be seen to be held to ransom by any particular group. Presumably a downward trend in oil prices would take much of the steam out the protests from hauliers and others seriously affected by rising fuel costs. After yesterday's announcement from OPEC, there is at least a chance that this might happen, although it may be some time before the benefit feeds through to business and consumers.