Paris, Aug 14: The price of oil is holding above a guideline ceiling set by a "gentleman's agreement" within Opec but the organisation seems unlikely to increase production, believing that supplies might be plentiful at the end of the year. The official price of the Organisation of Petroleum Exporting Countries' basket of seven global crudes, which ranges from 22 to 28 dollars, hovered around 29 dollars per barrel, exceeding the ceiling for the eighth day in a row.
And no let-up in prices was in sight.
If they remain that high for another 12 days, that would theoretically trigger an Opec price correction mechanism.
Established in March 2000, the mechanism works in two directions to adjust production to bring the basket price to within the target range.
If the basket price remains below 22 dollars per barrel for 10 working days, the 10 member nations -- Iraq, the 11th member, is not included in the production quota system -- are to reduce production by 500,000 barrels per day.
A basket price over 28 dollars per barrel for 20 working days would lead to an output increase of 500,000 barrels per day.
But even if the 20-day ceiling is breached this time, the decision to increase production is not automatic.
"It's an unwritten rule, gentlemen's agreement," explained an Opec source in Vienna, the cartel's headquarters. "The decision to activate the mechanism is never automatic."
Bureau Report