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Oil prices had been rising for a couple of months when  Purnomo Yusgiantoro, president of the Organisation of Petroleum Exporting Countries, declared in August that the cartel had no spare capacity.

'There is no additional supply,' Mr Purnomo said. 'The oil price is very high. It's crazy.'

For shooting his mouth off about the lack of spare capacity, Mr Purnomo caused the market to push oil prices to an unprecedented US$44.24 a barrel on August 4.

That was the highest level since crude futures were launched on the New York Mercantile Exchange in 1983.

Oil prices continue soaring to a peak of US$55.67 a barrel on October 25, raising fears of higher inflation and a global economic slowdown, before falling to about US$42 a barrel as the year comes to an end.

In a year of swingeing price increases many oil analysts have proclaimed the death of cheap oil, saying prices will never again fall below US$32 a barrel - the price at the beginning of the year.

The market's reaction to Mr Purnomo's comments demonstrated the cartel's power over black gold, which, like most commodities, has a finite supply but faces growing demand.

Opec countries - Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela - accounts for about 40 per cent of the world's petroleum output and, through managing the demand-supply equilibrium, can influence pricing in the face of prevailing market factors.

Often seen as a necessary evil, the cartel has now and again come under fire, with the latest salvo coming from  Gordon Brown, Britain's Chancellor of the Exchequer, who accused it of failing to stabilise the market.

'If the oil price moves as it has in the period I've been finance minister, from US$10 at one stage to US$50, then you've got a problem because you've got a degree of instability and volatility, but it makes it very difficult for countries to plan ahead,' Mr Brown said.

The last time a barrel of oil cost about US$10 was 1998.

US Treasury Secretary John Snow also weighed in, saying oil prices above US$50 a barrel were a 'headwind' that would slow global economic growth.

For most of the year oil prices had been driven up by soaring demand, particularly from the fast-growing economies of China and India, and the United States, which had to replenish low inventories ahead of winter.

Against the backdrop of rising demand, the supply outlook was clouded by a number of factors - such as terrorist attacks in the Middle East, especially key producer Saudi Arabia, and sabotage of Iraqi oil installations - that put a fear premium on prices.

Adding to the uncertainty were the tax problems facing Yukos Oil in Russia - a non-Opec member that provides about 10 per cent of world supply - and production disruptions in Nigeria and Venezuela. The hurricanes that struck America and the production rigs in the Gulf of Mexico also contributed.

All of these factors have a bearing on the market, but Opec holds the balance of power that can moderate or support price fluctuations.

The cartel has a good reason for wanting to boost prices - oil is priced in US dollars.

As the US dollar fell, cartel members went flat out to pump more than their quotas to compensate for revenue losses while the market cried out for more supply to depress price increases.

Last month, Opec pumped as much as 1.7 million barrels a day more than its 27 million barrels a day ceiling - the most in 25 years.

As the pendulum swung, prices began their slide to a four-month low of US$40.71 a barrel early this month as the world built up petroleum stockpiles and demand from China dropped as it cooled  its overheated economy.

The upshot was Opec's decision to cut excess production from tomorrow to prevent prices from falling further and stem losses from the falling US dollar.

'Unless we actually see more crude outside the market or Opec pledges to rein in more production, there's room for further losses towards the end of the year,' ABN Amro broker Paul Goodhew said.

Nonetheless, Opec is justifying its decision to remove about one million barrels a day from above-quota production by saying spring is a low-demand season.

But if prices continue to fall it may go further by lowering its production ceiling by one million barrels a day. 'If the market's reaction tells us it is necessary, we will [cut further],' Iranian Oil Minister Bijan Namdar Zanganeh said.

The production ceiling will be on the table at Opec's next meeting on January 30, when members will also consider raising the cartel's reference crude price, currently between US$22 and US$28 a barrel.

With the basket price rising to about US$34 this month some  hawks want  it as high as US$40 a barrel, with a floor at US$32.

After months of 'excessive speculative activity', Mr Purnomo is now calling for stability.

'The price of crude we see today is not because of the fundamentals,' he said.

He may be right, the speculative elements - like wild cards - notwithstanding, Opec is playing its supply card against market forces.



Opec sole wild card in crude poker