Tuesday, Sep 11, 2007


 
   (This updates a story from 1727 GMT with additional comment and background.) 
 
   By Oliver Klaus and Peter Millard 
   Of DOW JONES NEWSWIRES

VIENNA (Dow Jones)--Moving to meet rising energy demand and ease concerns about record high oil prices, OPEC agreed Tuesday to lift its output by some 2%, reversing a pair of output cuts agreed late last year and sanctioning unofficial supply boosts from members in recent months.

"Our message to the consumer is that we care and we are concerned and that is why we increased production," Organization of Petroleum Exporting Countries Secretary General Abdalla Salem el-Badri said after the cartel declared it would add 500,000 barrels a day of crude to its current output levels from Nov. 1.

OPEC, he added, will review the market again and "I hope the economy of the world will" be in good shape.

The 12-member group meets about 40% of global oil needs and the decision, against the expectations of almost all analysts, suggests its new quota of 27.253 million barrels a day will add some 250,000-500,000 barrels a day of oil into the market, depending on the estimate of OPEC supply.

Dow Jones Newswires estimates output by the 10 members with production targets last month hit almost 27 million barrels a day.

Analysts viewed the increase, however modest, as a recognition of rising oil demand growth in the face of a potentially chilly winter in the U.S., Europe and Asia.

It's also a nod to concerns about the potential damage high oil prices could do to economic growth amid considerable fears about the fallout on U.S. consumer spending from a correction in the housing market.

"There are financial issues putting clouds on (world economic growth) forecasts," said el-Badri, adding that OPEC will watch developments out of the U.S. carefully.

In a statement, the cartel said OPEC "would act swiftly" should global economic conditions worsen and oil demand weaken in the months ahead, signaling that the group might remove increased production in order to prevent oil prices from tumbling. 


 
    Change In Position

The International Energy Agency, the energy watchdog of the Organization for Economic Cooperation and Development, cautiously welcomed the decision.

"This is a smaller increase than we would have liked but I think it was more than anyone thought a few weeks ago," said Lawrence Eagles, editor of the IEA's oil market report.

"It's an indication OPEC is sensitive to the recent tightening of the oil market and we hope they will continue to recognize market signals."

Going into this meeting, OPEC was expected to hold current official production levels unchanged, as it gauges the fallout on the U.S. economy from turmoil in the credit markets.

Ministers stressed there is ample oil in global markets, arguing that refinery bottlenecks, political risk factors and supply disruptions are responsible for pushing benchmark crude futures towards record levels near $78 a barrel.

But analysts say the cartel, particularly Saudi Arabia, is acting now to see off a price move above $80 a barrel in the fourth quarter that could potentially eat into peak energy demand.

"With prices so high, the Saudis may now be more willing to take the risk, in their eyes, of an increase in oil production," said Simon Wardell, an analyst at Global Insight in London. He said the U.S. subprime mortgage crisis may have crystallized the issue for Saudi Arabia.

Saudi Arabia's powerful oil minister Ali Naimi didn't comment publicly at this meeting.

The OPEC decision comes as oil prices flirt with record levels north of $78 a barrel and the market's initial reaction suggests the modest amount of extra oil may struggle to deflate some of the bullish market momentum.

Benchmark crude oil futures in New York slipped immediately after the OPEC decision but later climbed 43 cents to $77.92 a barrel.

-By Oliver Klaus, Dow Jones Newswires; +9714-3644961; oliver.klaus@dowjones.com

-By Peter Millard, Dow Jones Newswires; 5255-5080-3454; peter.millard@dowjones.com (Spencer Swartz, Matt Chambers, Lananh Nguyen, Adam Smallman and Grainne McCarthy contributed to this article.)

(END) Dow Jones Newswires

11-09-07 1819GMT