City plays down OPEC's biofuel warning - but markets are rattled

CITY oil analysts yesterday played down OPEC's shock warning on Tuesday that if the West accelerated its move to biofuels to combat climate change it could send the price of oil "through the roof".

The OPEC warning that it might respond by cutting investment in oil production if it felt its western consumers were stepping up their reliance on biofuels was a contributory factor in a 110-point fall in the FTSE 100 to 6,522.7.

The interest rate rise in the eurozone yesterday and the possibility of another rise in Britain today were also said to be big factors.

Despite OPEC's comments, BP fell 7p to 559p and Shell dropped 14p to 1,917p, as the oil price moved above $70 a barrel again.

The warning was seen as deliberately timed to have most impact ahead of yesterday's start of the G8 summit, where Russia's increasingly nationalistic energy policy is likely to come up for discussion.

However, Jamie Cumming, oil analyst at Scottish stockbroker Bell Lawrie White, said: "There's no way OPEC is going to stop the drive on non-carbon fuels.

"It seems way too early for this sort of warning. I would not have thought biofuels would be a threat to OPEC in the short term, together with the likes of windfarms and solar energy, and by short-term I mean ten years or so.

"OPEC members, such as Saudi Arabia, are involved in biofuels themselves, so this [warning] is a little disingenuous."

Another oil specialist said: "OPEC's warning is interesting but looks premature as the biofuels situation stands."