Beirut, Lebanon – OPEC agreed Thursday to raise its production ceiling by 2 million barrels a day next month in a bid to bring down uncomfortably high prices of crude, oil ministers said.
The Organization of Petroleum Exporting Countries also agreed to raise the target by an additional 500,000 barrels a day in August if necessary, they said.
However, oil analysts said the decision was unlikely to bring any relief to motorists in the form of cheaper gasoline.
OPEC’s decision represented a compromise between members, led by influential Saudi Arabia, who sought an immediate production increase of 2.5 million barrels a day to reach a ceiling of 26 million barrels and other members, including Iran, who preferred to raise the ceiling in at least two stages.
"We have decided to lift the ceiling to 25.5 (million barrels a day) effective July 1 and 26.0 (million barrels a day) effective August 1 and we will meet to review future action on July 21 in Vienna," Saudi Oil Minister Ali Naimi said.
OPEC representatives from Qatar, Nigeria and the United Arab Emirates confirmed the decision before the group met for a closed-door meeting to ratify it. A formal announcement was expected later Thursday.
No shortage seen
"We believe there is not any shortage in the market and we should be very careful about the coming months," Iranian Oil Minister Bijan Namdar Zangeneh said in explaining the decision to raise the ceiling in two steps.
However, OPEC did not urge members to produce more oil. OPEC President Purnomo Yusgiantoro of Indonesia said in his opening address that members should do "as much as they can to help stabilize the oil market."
The cartel’s members already are exceeding their quotas by at least 2.3 million barrels a day, so the ceiling increase of 2.5 million barrels a day essentially legitimizes that overproduction.
Nigeria’s representative said the higher ceiling would help reduce prices.
"To act as responsible members of the world community, we have to make this strong signal to the market that we are ready to produce to cool the system," Edmund Maduabebe Daukoru said.
Earlier signals from OPEC, which produces more than a third of the world’s crude, that it would raise both its ceiling and its output had the desired effect of lowering record prices. Oil prices plunged 6 percent Wednesday after the United Arab Emirates and Kuwait pledged to join Saudi Arabia in adding more barrels to global supplies.
Traders still wary
Prices rebounded somewhat early Thursday as traders questioned OPEC’s ability to pump enough oil to calm market fears of terrorists disrupting supplies. In London, contracts of Brent crude for July delivery were trading 36 cents higher at $37.22 a barrel.
July contracts of U.S. light crude were up 41 cents at $40.37 in New York. This was still well short of U.S. crude’s record finish Tuesday, which followed a terrorist attack in the Saudi oil hub of Khobar that killed 22 people, mostly foreign oil workers. The attack, which was blamed on al-Qaida gunmen, stunned markets, which were already nervous about stretched oil inventories and Middle East tensions.
OPEC officially aims to keep prices between $22 and $28 for its benchmark blend of crudes. Although OPEC delegates said Thursday the group was not changing its preferred price target, prices have exceeded the upper limit since December.
One oil analyst said he expected prices to rise initially because markets were expecting more from OPEC.
"I think it is a disappointment to the market because the market was expecting 2.5 million barrels, as the Saudis announced earlier," said Falah Aljibury, an energy consultant based in Alamo, Calif.
However, the need for OPEC to signal that it would add barrels of fresh oil to the market was even more important than a higher production ceiling, Aljibury said.
“To act as responsible members of the world community, we have to make this strong signal to the market that we are ready to produce to cool the system.”
Edmund Maduabebe Daukoru
Gas remains expensive
Consumers will not be paying less for gasoline anytime soon, as other factors such as refinery constraints and accelerating demand during the summer driving season in the United States will have an effect at the pump.
"Gasoline prices are still going to stay high," said Jamal Qureshi, of the Washington-based consultancy PFC Energy.
Purnomo said the high prices stem from "a combination of factors over which OPEC has no control," including speculation on futures markets, geopolitical concerns and stronger than expected demand in China and the United States.
Since arriving in Beirut, OPEC representatives have expressed a common desire to increase their production ceiling.
Under pressure from the United States and other major importers, Saudi Arabia already has boosted its actual output by 600,000 barrels a day, independently of OPEC.
The UAE oil minister said his country would raise production by more than 400,000 barrels per day, and Kuwait said it would increase its output by 100,000