Are Opec to blame for oil price rises?

Good on Wednesdays' Independent newspaper for asking: "The Big Question: Does Opec have too much power, and is it to blame for the high price of oil?"

Gordon Brown has blamed Opec, the cartel of oil producing countries which produces around 40 per cent of the world's crude oil for holding back on oil production and giving rise to the large oil price rises. Oil again hit a new high of $129 a barrel and even Opec ministers have predicted that it could reach $200 (£100) a barrel within two years - others have said more than that.

It is of course more reassuring to think Opec is holding back the supply of oil, than to believe that the world's oil fields are simply running dry as many like Professor Heinberg who spoke in Stroud last year, have warned. To me the evidence of oil running out is overwhelming especially that Opec have been overestimating reserves - indeed I find it extraordinary that Government's continue to live in denial - of course other factors play their part and indeed we may even see oil come down in price for a short while but the overall trend is for much more expensive oil....

The Independent's article by Michael Savage posed some useful questions - I'll cut to the key ones with his answers below:

So is Opec holding oil production back? That's the billion dollar question. Several world leaders think so, but now some are reading Saudi Arabia's reluctance to invest further in its oil fields as evidence that its supply is under threat. If that is the case, some argue world oil production may soon have peaked. The country keeps information on its oil industry secret, so there are many claims and counter-claims made. But if that is true, Opec – and Saudi Arabia in particular – may not be holding back oil, but simply unable to raise production further. And if they did start supplying more oil, fears over how much oil they have left would keep the price of oil high anyway. According to the Association for the Study of Peak Oil and Gas (Aspo), global crude oil supplies will peak at 87 million barrels per day by the end of the decade, and then begin a painful decline. And it is by no means only a belief held by doom merchants from the fringes of credibility. One former US Secretary of Energy is a convert. James Schlesinger said the "peakists" could "declare victory", having transformed themselves from a "beleaguered small minority of voices crying in the wilderness. You are now the mainstream".

What else could be behind high prices? Factors known in the trade as "above ground risks", such as instability in the Middle East. Political instability in Iraq has made it difficult to ensure steady oil production there. And though the level of oil reserves is a matter of constant debate, few would disagree that the oil market is stretched as demand continues to grow, especially in the emerging markets in Asia. Under such conditions, small hiccups in the supply chain can have a significant impact on the market. As a result, localised incidents, such as outbreaks of political instability in Nigeria or strikes at obscure oil refineries in Scotland, can have a real impact.

So is Gordon Brown right to point the finger at Opec?

Yes...
* It controls 40 per cent of crude oil production, so of course its decisions have a huge bearing on the price of oil
* Opec nations claim to have ever greater reserves, so they could easily increase production if they so wished
* Developed and developing nations are hungry for oil. With no shortage of customers, Opec can only gain from pricey oil

No...
* Instability in securities markets has led to speculation in the commodity futures markets, pushing up the price of oil
* Opec does not produce more oil because it cannot – we have overestimated the level of reserves it has left
* There are plenty of other reasons for high oil prices, such as the level of demand and "above ground" security risks