Analysis: We're Scraping the Bottom of the Barrel: Oil Price Puts Global Growth in Jeopardy ; Demand for the Black Stuff Is Gushing but Supply Isn't and the Surge in the Cost of Crude to Its Highest Level since 1990 Shows No Sign of Running out of Fuel. OPEC Is Powerless, Writes Tim Webb, and the World Economy Will Suffer

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nalysts from Lehman Brothers estimated at the end of last year that a barrel of Brent crude oil would cost $24 (pounds 13) on average in 2004. Taking its cue from the terrorist attacks in Saudi Arabia, surging demand and low oil stocks, the price of Brent went above $36 last week. In New York, the price of the lighter West Texas Intermediate topped $40.

Prices are now at their highest since 1990, when Saddam Hussein invaded Kuwait, and higher than they were in the run-up to the second Gulf war last year. Compared to this time in 2003, Brent is more than $10 per barrel, or 40 per cent, higher - to the astonishment of economists and analysts who have been predicting a crash in oil prices. Paul Horsnell, the head of research at Barclays Capital, says: "That cry has been the oil analysts' equivalent of walking around with a sandwich board proclaiming a very rapid end for the world."

Clearly, they were wrong. The Bank of England said last week that it had decided to increase interest rates partly in response to rising commodity prices. Oil prices may drop a couple of dollars between now and the end of the year, but no one is predicting they will drop below $30 any time soon.

So how high can they go? And is the global economy - and that includes us - heading for the first oil crisis of the 21st century?

Global demand for oil is rising as the economy picks up, driven in large part by China. Barclays Capital estimates that total worldwide consumption for 2004 will be 80 million barrels of oil per day, up from 78.6 million in 2003. The growth in demand from China alone makes up almost a third of the increase.

Seasonal demand is about to spike too with the approach of the "driving season", mainly in May and June when petrol consumption increases as Americans drive across the country in their gas- guzzling four-wheel drives to go on holiday. Petrol stocks in the US are already low. But new environmental regulations introduced by the government requiring refiners to strip out the chemical MTBE, believed to cause cancer, have helped to exacerbate the shortage this year, as there just aren't enough refiners around which comply with the regulations.

Petrol stocks are estimated to be 13 per cent lower than needed to meet the demand during the driving season. As a result, the US will import more petrol from Europe, putting further pressure on crude supplies.

Dr Manouchehr Takin from the Centre for Global Energy Studies, a think- tank set up by the former Saudi oil minister, Sheikh Yamani, says that speculators have also played their part in pushing up the cost of oil. "People are prepared to pay higher prices for gasoline because there is a fear of shortage. But in the last six months, even pension funds have been speculating, joining hedge funds. The expectation was that they would go short on supply, but many are still holding long positions." This suggests the market expects prices to go higher.

But there is little hope of a sudden glut of oil coming on to the market to meet rising demand. The Organisation of the Petroleum Exporting Countries (Opec), which pumps some 40 per cent of the world's oil, no longer seems willing - or able - to manipulate prices by changing production levels. Its quotas are rarely met and are becoming irrelevant.

This was underlined by comments last week from Indonesia, the holder of the Opec presidency. An official explained the high prices were caused by speculators and not a shortage of oil, as the cartel is already producing more than two million barrels above its official quota. Ironically, its last quota was meant to cut one million barrels last month because demand was expected to fall after winter in the western hemisphere; the Centre for Global Energy Studies estimates only 400,000 barrels were cut.

The admission that Opec is once again not meeting its own quotas is not news to anyone. …