At their 15 September meeting in Vienna, OPEC ministers decided that, from 1 November, the collective ceiling would rise by 1 million barrels a day (b/d) to 27 million b/d. This came on top of a 1 million-b/d increase from 1 July and a further 500,000 b/d from 1 August. None of these announcements created more than a ripple in the market, because none had any material impact on OPEC production, which hit a 15-year high of about 30 million b/d in August - 28.2 million b/d excluding Iraq.

OPEC members are undoubtedly less concerned than they profess to be that their products are fetching record prices. But consumers and traders are increasingly aware that, rather than maliciously hoarding oil, OPEC is producing at close to capacity, with only Saudi Arabia sitting on any significant slack. Total OPEC output is up by 3 million b/d year on year, while the kingdom is producing at about 9.6 million b/d - against an official quota of 8.8 million b/d. And Petroleum & Mineral Resources Minister Ali Naimi announced in late September that, by bringing on stream the Abu Safah and Qatif field developments and intensifying activity at other fields, capacity would rise imminently to 11 million b/d. Of equal importance is that Abu Safah and Qatif will produce the light, sweet crude that has been so much in demand over the summer.

Naimi's soothing words fell on deaf ears, however. Prices hit new highs - and the headlines - the following week, with US light crude futures =breaching the $50-a-barrel barrier. Outspoken OPEC president and Indonesia's Energy Minister Purnomo Yusgiantoro reacted by stating that OPEC is capable of bringing a further 1.5 million-2 million b/d of production to the market if required. His words merely confirmed the consensus that, outside Saudi Arabia, room to manoeuvre is limited. During a relatively peaceful period in world politics, 1.5 million b/d of spare capacity against world demand of about 81.5 million b/d would scarcely appear comfortable. But at a time of turbulence chiefly in the Middle East, but also in Russia, South America and West Africa, the market looks to be on a knife-edge.

'To say the market is oversupplied misses the point,' says Paul Horsnell, analyst at Barclays Capital. 'If you push someone with claustrophobia into a small cupboard and tell them not to worry because they have got enoughair, you would not expect that to remove their unease. Likewise, the market is responding to the lack of flexibility and the need for more insulation from shocks, and not to the day-to-day adequacy of supply.'

The point has been well illustrated in recent months, with the market latching on to any bullish event. In mid-August, prices moved upwards on fears that the referendum on the rule of President Chavez would spark unrest and threaten oil facilities. Ever since the Russian government hit oil giant Yukos with billions of dollars in back tax demands earlier in the year, the twists and turns of the saga have pushed up prices. First it was a rumour, swiftly scotched, that Moscow would freeze oil sales. Then, in September, Yukos claimed that supplies to China National Petroleum Corporation would be suspended because of the Russian company's inability to pay transport costs - which, again, Moscow quickly moved to counter. Yet in August, output from both sta