The 13-member Opec, which accounts for 40 per cent of the world’s oil output, decided to keep its official daily production at 29.67 million barrels at an extraordinary meeting in the Austrian capital, insisting the market was well supplied. The organisation was to meet again on March 5 in Vienna for a regular gathering.

Lower oil prices are not welcomed by crude producers as their export income drops. Saudi Arabia, the world’s biggest exporter of crude, is producing about 9.0 million barrels of oil per day, so even small changes in prices significantly affect the Kingdom’s revenue.

Meanwhile, in the New York market, oil prices dropped by three per cent on February 1, as fresh signs of weakening US economic growth overshadowed Opec’s decision to maintain its output cuts. US crude lost $2.79 to settle at $88.96 a barrel, dropping 3.04 per cent. London Brent crude fell $2.77 to settle at $89.44.

In China, the world’s number two oil consumer, oil demand surged in December to the highest growth rate for seven months, marking a strong end to a weak year, after imports and higher refining rates eased shortages that had choked consumption nationwide.

Demand is expected to pick up in 2008 from 2007’s lackluster 3.5 per cent expansion, but analysts warn that growth could be threatened by global economic turmoil and China’s own rigid pricing system.

Domestic caps on diesel and gasoline, which Beijing has frozen as part of a fight against inflation, make refining and imports unprofitable with oil at current levels near $90 a barrel and many analysts expect markets to stay high or climb this year.

Oil is expected to average $81 this year. The average price of oil last year was $72.30. Oil’s six-year rally, which has seen prices above $100 earlier in January, has largely been fueled by booming economies in China, India and the Middle East.

Analysts said they do not see any evidence of this demand waning despite concerns of global economic slowdown led by the United States. US crude prices have fallen to around $90 a barrel from the record peak of $100.09 reached on January 3, as traders fear a possible US recession will cut fuel consumption.

A weak dollar, political tensions in the Middle East and tight Opec supplies will keep prices near current levels.

Analysts forecast for 2008 for US crude showed a wide divergence of $25.83. Goldman Sachs and UniCredit were the most bullish, predicting prices would average around $95 this year.

Gold

Gold prices have touched record highs in recent days. Spot gold had risen to as high as $933.10 an ounce on January 28, while platinum hit $1735 an ounce. Gold has jumped 11 per cent this year after rising 32 per cent in 2007, while platinum rose as much as 14 per cent on the top of last year’s 37 per cent rise.

A power crisis has shut South African mines, with a further lift coming from firm oil and expectations of more US rate cuts. South Africa’s three top gold producers and the world’s biggest platinum miner suspended production at all their mines in the country due to a power crisis.

Energy is the lifeblood to keep these mines going. South African production is in terminal decline, notwithstanding the five-year bull run in metals, and these outages can only further accelerate their declining position.

Gold, traditionally seen as a safe-heaven asset and a hedge against oil-led inflation, was also supported by strong oil prices and nervousness in global financial and credit markets. Oil jumped above $91 a barrel, building on earlier gains. Bullion investors kept a close eye on the dollar.

Despite the dollar’s marginal gain against the euro, it was seen staying on the back foot in the lead-up to next week’s US Federal Reserve meeting, where markets have priced in the risk for a further 50 basis point cut in the 3.5 per cent rate.

The Fed slashed interest rates by 75 basis points earlier this week in an emergency bid to head off a US recession and halt a global rout in stocks. A rate cut is often seen as a negative factor for the dollar and investors look for other alternative assets, including gold. Bullion generally moves in the opposite direction of the dollar.

By the end of January gold and platinum slipped from earlier week’s record levels as mining companies in South Africa restarted operations following the power crisis which caused widespread interruptions to production.

Eskom said electricity supplies to mining companies would improve this week but South Africa’s state power company is expected to start rationing power to customers as early as March.

The clear risk is that there will be more and more supply disruptions and given South Africa’s complex mining sector and renewed focus on worker safety, this promises further disruptions in ore extraction and processing.

Gold is expected to peak at between $950 and $975 an ounce but the risk of a move through the $1,000 level remained acute. JP Morgan is forecasting that gold will average $914 this year and experience only a modest decline next year, averaging $845 in 2009.

In the London market, gold fell sharply from record highs on February 1, with the metal’s rally running out of steam in heavy selling as the dollar rebounded versus the euro. The metal fell to an intraday low of $905.40 – down roughly two per cent on the day.

Dealers said further selling could not be ruled out on gold, with $890 seen as the next major support level. Some said the losses would be limited as the fundamental arguments in favour of gold remained intact, including prospects for further US rate cuts and dollar weakness due to fears of a recession in the world’s large economy.

Silver surged to a 27-year peak, while palladium rose to its highest level in 20 months, tracking strength in gold prices. Platinum set a record high of $1,755 an ounce as supply problems in top producer South Africa boosted sentiment. Palladium followed in platinum’s wake, jumping to a 6-year high at 410/413 an ounce from $386/389.