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http://www.money.telegraph.co.uk/money/mai...xfrontcity.html

Oil leaps as Opec hints $80 barrel is on the way
By Malcolm Moore, Economics Correspondent (Filed: 04/03/2005)

The price of oil hit a record high yesterday after Opec said that it could cost $80 a barrel in the next two years.

The price of Brent in London closed at $52.70, a rise of $1.48, while in New York crude was up $1.40 at $54.45.

"I cannot rule out the rise of a barrel of oil to $80 in the coming two years," said Adnan Shihab–Eldin, the acting secretary–general of the oil cartel.

His statement unsettled the market, even though he added that the probability of $80 was low, and that such a price spike would be short lived. Mr Shihab–Eldin is the second member of Opec to speak out in recent days, after the Saudi Arabian oil minister, Ali al–Naimi, said the price was likely to remain between $40 and $50 for the rest of the year.

Opec is thought to be increasingly comfortable with a high price. Kevin Norrish, an oil analyst at Barclays Capital, said: "They seem to be a bit more at ease with prices given what we have seen over the last 18 months, when high prices did not cause the global economy to crash."

Mr Shihab–Eldin said that the cartel had set aside its price targets of $22 to $28 a barrel since rising demand in China and India had fundamentally changed the structure of the oil market.

Axel Busch, chief correspondent at Energy Intelligence, said demand for light sweet crude, which is lower in sulphur and easier to refine, will grow even more in the coming months. Oil future prices are all benchmarked in light sweet crude. Mr Busch said regulatory changes in India and China in May and June will force their refineries to use lighter crude instead of heavy, sour crude.

"If Opec increases production, that would be a significant psychological boost but it will not have an enormous fundamental impact on the market because most of the Opec production is heavy crude," he said.

The price of oil has also been bolstered in recent weeks by a cold snap in Europe and the US that has increased demand for heating oil, and by three shutdowns at US refineries.

If the price of oil rises to $80 between May and September, when American drivers use a large proportion of the world's petrol, then pump prices could jump by at least 10p a litre, said Ray Holloway, head of the Petrol Retailers' Association.

The price of a litre of unleaded is currently 80.3p on average. He added that if the rise in oil prices occurred outside the US driving season, then "the price of petrol would not change much at all". In the US, petrol prices reached record highs yesterday despite data showing that stockpiles were increasing.

Meanwhile, Intercontinental Exchange, the owner of the International Petroleum Exchange in London, outlined plans to hold an initial public offering. The IPE, which is Europe's largest oil futures market, is facing pressure from US rival Nymex, which is mulling over a launch in London.