Oil price soars as American stocks shrink

US stocks of crude oil, one of the crucial factors in setting global prices, have plunged close to a 30-year low and threaten to further destabilise a market now in turmoil.

Oil prices, now soaring above $33 (£22) a barrel, have been pushed sky-high as traders and producers react to strikes in Venezuela and the threat of war in Iraq. But while both of those threats contribute to the so-called war premium built into crude prices, City analysts argue that the fundamentals behind oil are in serious trouble.

Last week a reading of US crude inventories showed stocks hovering at the 273 million barrel mark. That, say industry experts, is dangerously close to the 270 million depths plumbed in the wake of the 1970s oil shocks. US crude stocks have been on the slide for more than a year, and are now more than 13 per cent lower than in January 2002.

One possible cause for the sudden drop is that oil-producing nations in the Middle East have been building a secret stockpile in the same way that the US – a net importer of oil – maintains a "strategic reserve" to ensure that its military and government can continue to function if supplies are cut off. Opec member countries are understood to have siphoned off large quantities of oil, and are storing them in sites outside their countries, ready to be called upon if a war on Iraq spills out to other parts of the region.

As one City oil trader explained: "Low stocks can spell big problems in the US, and you have to remember that America is the world's largest consumer of oil. A sudden winter cold snap can create a run on heating oil that can pile another two dollars on to global prices."

But the low inventories point to an even more fundamental issue governing the price of oil. The threat of war creates worries over the future of supply from Iraq itself, but brings with it even greater concerns over the future unity of Opec – the 12-member cartel that controls the lion's share of world oil supplies.

The US, along with the rest of the developed world, depends on Opec both to keep the black stuff flowing and keep the price under some sort of control.

In recent years Opec has risen to that double challenge, but over the past six weeks the group has failed to maintain any real control over prices. The cartel has set itself the target of keeping crude prices between $22 and $28. Traditionally, when it wants the price to go down, it turns the taps on, and does the opposite when it wants prices to go up.

But since mid-December crude has stayed above $28, and an emergency production hike by Opec has not reined prices in. "A large part of the problem is that most Opec members are cheats," explains an adviser to Opec. "They take advantage of high crude prices to make more money by producing more. Opec control over prices is a dangerous illusion."

Opec's inability to calm market fears was further demonstrated last week as the price soared on fears that Saddam might blow up his own oil fields.