OPEC agrees to lift oil output

OPEC producers on Wednesday agreed a two percent increase in oil supplies in a bid to rein in $55 crude.

The Organization of the Petroleum Exporting Countries raised production limits by 500,000 barrels a day to 27.5 million bpd, said OPEC President Sheikh Ahmad al-Fahd al-Sabah.

The agreement also gave Sheikh Ahmad the power to trigger another 500,000 bpd increase later in the second quarter should prices stay high. Ministers scheduled their next meeting for June 7.

Saudi Oil Minister Ali al-Naimi said Riyadh was aiming to bring crude down to $40-$50 a barrel, the first time the world's biggest oil exporter has advocated support for prices that high. "Current oil price levels of $55 are high and we want prices to be between $40 and $50 a barrel," Naimi told the London-based Arabic-language Al-Hayat newspaper.

After the deal, U.S. crude traded off 45 cents to $54.64 a barrel and London Brent fell 47 cents to $53.38 a barrel.

"OPEC are doing their best but it is a train that is difficult to stop," said Bob Finch, head of trade at independent oil trading house Vitol SA.

Gulf OPEC delegates said Saudi Arabia and Kuwait would ensure real extra volumes were delivered to permit world inventories to build in the spring, when seasonal demand is at its lowest ebb.

The only producers with much spare capacity to tap, the two are ready to pump actual extra volumes of 500,000-700,000 bpd in the second quarter, the delegates said. The Gulf producers want to ensure a bigger-than-normal second quarter stockbuild to avoid further upward pressure on oil prices later in the year.

"This deal is about anticipating oil demand next winter," said Glenn Murray of GM oil brokers in Monaco.

"But the jury is out on whether they can store enough oil to meet that demand."

Naimi said on Tuesday Riyadh had already raised production by 250,000 bpd in anticipation of the deal. Kuwait said it would add 120,000 bpd in April.

With Iraq, not subject to an output quota, pumping about another 2 million bpd, that would put total OPEC supply back above 30 million bpd and close to September's 25-year production high.

Riyadh has already announced it expects to pump more in the second half of 2005 to meet another year of strong world fuel demand, fed by China's rapidly expanding economy.

Fears among consumer countries are that producers will struggle to cope with demand gains later this year, stretching the world supply chain and forcing prices higher.

Global crude consumption is expected to hit 86.1 million bpd during the seasonal demand peak of the fourth quarter, up from 83.7 million bpd on average for the first nine months of 2005, according to projections from the Paris-based International Energy Agency.