Shell baffled by soaring oil-price

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Amid claims overnight from the Saudi-led oil cartel Opec that crude prices could top $200 a barrel from present levels nearing $120, Royal Dutch Shell's finance director Peter Voser admitted his company is perplexed by the market.

"It is hard to explain," he said. "Outside of Scotland [where the Grangemouth refinery is shut down by strikes] there are no physical shortages in the world. On top of that, the margins at our refineries remain low, which is normally the sign of a well-supplied market. "What we have to look for, therefore, is the effects of the weak dollar, the shift of liquidity from the equities market into commodities and the speculation in commoditieswe have seen, as well as the political premiums that are paid, which we have seen in Nigeria [where Shell and Exxon have been attacked by local militia].

"We will not speculate on $150 a barrel or $200 but what we will say is that there is rising demand, higher production costs and the effects of climate change. These are what we are calling the three hard truths, which mean we believe there will be higher prices than we are used to."

Voser rebutted claims the supermajors are profiteering at the expense of motorists. "We are investing between $26 billion and $27 billion this year to ensure energy markets remain well supplied. That is the equivalent of reinvesting all our profits from last year."

Shell's production remains flat at 3.5 million barrels a day but an oil price averaging $90.72 in the first quarter of 2008 against $54.73 in the first three months of 2007 sent production profits soaring by more than 50%. The quarterly dividend is up 11% at 40 US cents.