A modest hike in oil production is unlikely to dampen record high oil prices, a leading energy expert has said.
Dr Fatih Birol, chief economist at the International Energy Agency, told Aljazeera.net that long-term oil prices would spiral because of the world's overdependence on Middle East energy.
He was speaking on the day that the Organisation of Petroleum Exporting Countries (OPEC) agreed to immediately increase official output limits by two million barrels per day (bpd).
In a Beirut meeting on Thursday, OPEC ministers, who together produce one-third of the world's oil output, also agreed to an additional 500,000 bpd increment in August.
The plan was a compromise that undershot market expectations that the cartel would authorise an immediate quota increase of 2.5 million bpd, or 11%.
Saudi Arabian Oil Minister Ali al-Naimi said the deal would "send a very, very strong signal to the market." He added the extra August increment could even be altered higher.
And Qatari Oil Minister Abd Allah al-Attiyah said: "It's a good agreement, we will be able to test the impact of the policy on the oil market before we meet again in July."
"I think the market is very nervous at the moment and is reacting in an exaggerated way. But the real point is that we have to start looking away from the Middle East for reliable oil supplies. So in a sense you could say the current high oil prices may force the world to do that"
Dr Fatih Birol,
International Energy Agency
Following the announcement, US oil prices initally rose back above $40 a barrel as the OPEC offer failed to reassure a market held up by fears over refined product tightness and supply security.
But several hours later oil prices began to fall more than $1 below the $40 a barrel mark.
OPEC has been under enormous pressure from consumer countries worried about the impact of inflated energy costs on economic growth. For their own part producers do not want prices at heights that put fuel demand at risk.
Delegates said the pact was a compromise between Saudi Arabia and countries like Iran and Venezuela which feared a Saudi proposal for an immediate 2.5 million increment could trigger a big price collapse.
The IEA's Dr Fatih Birol told Aljazeera.net that although the production hike was a recognition of the need to dampen prices, it probably wasn't enough.
"The fact is that during the last year, OPEC's output hasn't been increasing in accordance with world demand. I hope this production increase will lead to price reductions, but the signs are not encouraging," he said.
Energy wake-up call
"But we must remember that a reduction in prices is not only in the interests of the West. In fact, high prices are having a more damaging effect in developing countries. People feel the pinch less in the United States and in France than in Zimbabwe or India."
Dr Birol believes influencing world oil prices is not compleletly in OPEC's control.
"There are a few things to blame for the high prices," he said. "There has been a seasonal increase in demand for oil, there are problems with refinery bottlenecks in the US, and the market is nervous about the geopolitical situation in the Middle East - especially about supply security given the recent attacks in Saudi Arabia."
And he said the current crisis is a reflection of the world's ongoing over-reliance on cheap Middle East oil.
Markets are worried about Saudi
oil supply security
"I think the market is very nervous at the moment and is reacting in an exaggerated way. But the real point is that we have to start looking away from the Middle East for reliable oil supplies. So in a sense you could say the current high oil prices may force the world to do that.
As for OPEC's future production trends, Dr Birol projects that in 20 or 30 years the oil cartel will have increased market share by 50%.
"This will make them even more powerful and that cannot be a good thing for developed and developing countries alike," he said.