BUSINESS
06/08/2011 08:17 am ET Updated Aug 08, 2011

OPEC Hammers Out Deal To Raise Oil Supply After Outside Pressure



VIENNA (Ramin Mostafavi and Alex Lawler) - OPEC producers on Wednesday hammered out a deal to raise oil supplies for the first time in four years to support the fragile world economy.

Under pressure from consumer countries to contain fuel inflation, Saudi Arabia hopes to convince the Organization of Petroleum Exporting Countries to lift production by as much as 1.5 million barrels a day, Gulf delegates said.

They said that one option could be an initial one million bpd increase with a promise of another 500,000 bpd to come in three months time.

Iran offered to host an emergency meeting within three months to review policy, an Iranian source told Reuters.

Initial opposition to an increase from Iran shifted to a proposal for a modest 700,000-one million bpd increase during a closed session of ministers, the Iranian source said.

Iran's acting oil minister Mohammad Aliabadi struck a conciliatory note at the start of the meeting.

"Iran is a member of OPEC and will go with the decision of the majority," Aliabadi told reporters.

As OPEC's biggest producer and the only one with any significant spare capacity, Saudi usually gets its way.

But long-time price hawks Iran and Venezuela plus Ecuador, Iraq and Angola all want to keep oil prices above $100 a barrel. Brent crude traded near $116 a barrel.

BASELINE?

Also at issue is the baseline for any increase.

As the meeting started it was not clear whether an increase would come on top of current output or from OPEC's out-of-date production target, which is much lower.

Delegates said Saudi would prefer to use April OPEC output of 26.33 million bpd as the baseline rather than the old official target of 24.84 million set in December 2008.

If Riyadh gets its way, OPEC would be committing to a real increase rather than a cosmetic deal that leaves Saudi to pump more unilaterally outside the official agreement.

An increment of, say, 1 million bpd on top of April output would lift OPEC's official target for 11 members by 2.51 million bpd to 27.35 million. Iraq, not bound by a quota, is pumping an additional 2.7 million.

Venezuela is holding to a tough line.

"We do not agree with production being increased now, we must continue to consolidate balance in the market and we have to defend fair prices," Venezuelan President Hugo Chavez said on Tuesday in Ecuador.

Apparently backing Gulf Arab producers are Nigeria and Algeria who sit on a committee that on Tuesday recommended a one-million-bpd increment.

SAUDI PUMPING MORE REGARDLESS

Regardless of the policy decision, Riyadh will pump more.

A Gulf official said Saudi was already raising output by at least 500,000 bpd in June to 9.5-9.7 million bpd.

Saudi output was last as high in the middle of 2008 after oil prices set a record $147 a barrel, shortly before recession sent prices crashing.

Forecasts suggest more oil is required to stop oil prices rising again.

OPEC's Vienna secretariat sees demand in the second half of the year 1.7 million bpd higher than current cartel output.

Copyright 2011 Thomson Reuters. Click for Restrictions.