Opec meets in Beirut to discuss oil output rises to calm market jitters

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The Independent Online

Opec, the oil producers' cartel, will decide today how much of a lifeline to throw the world economy by increasing production in an attempt to bring down the high price of oil.

Opec, the oil producers' cartel, will decide today how much of a lifeline to throw the world economy by increasing production in an attempt to bring down the high price of oil.

Already ahead of today's meeting of Opec in Beirut, one member, the United Arab Emirates, eased market nerves by declaring that it would unilaterally raise output by 400,000 barrels per day.

US oil prices dropped more than a dollar yesterday from a 21-year record high of $42.45 hit on Tuesday as the prospect of more Opec crude helped ease supply security fears sparked by the wave of violence in Saudi Arabia, the world's leading oil exporter. In New York, oil futures slid $1.23 to $41.10 a barrel in early trade. London Brent crude was down $1.18 to $37.90.

Tom James, of Tokyo Mitsubishi International in London, said: "Opec is giving all the right signals that they are going to support Saudi Arabia to increase production, and the market is slipping off as a result. But the risk premium is still in there.... It is going to take a little bit longer for the market to be reassured after what happened at the weekend."

Opec is expected to agree to lift official output limits by 2 to 2.5 million barrels per day at the Beirut meeting but that would only legitimise the breaches of the official 23.5 million bpd that already exist. Analysts said the market was hoping that the cartel would go further.

Julian Lee, of London's Centre for Global Energy Studies, said an additional 2.5 million barrels would provide some help to market sentiment by demonstrating that the organisation wanted prices to ease back. But he said that it was possible that Opec would go further and temporarily lift all quotas.

Opec nations agree individual limits but most are already pumping oil at full capacity. Only Saudi Arabia can provide significantly more oil, and to a lesser extent, UAE, Kuwait and Nigeria. Members that cannot raise output, led by Venezuela, have lobbied against any quota increases.

Mr Lee said: "Opec is waking up to the fact that $40 oil is not good for it in the medium and long term." He said that, not only did a high oil price hit demand in oil-consuming countries, it also encouraged the development of new oil fields, thus raising supply.

The Saudi Oil Minister Ali al-Naimi, who has already promised an extra 700-800,000 bpd of crude for June whatever Opec decides, warned that the extra 2.5 million bpd that his country supports may not ease the market. "Opec cannot always control the price," he said.

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