In symbolic gesture, OPEC to increase production target by 1m

In symbolic gesture, OPEC to increase production target by 1m barrels later this year

Matt Moore, Associated Press, Vienna

OPEC defended its decision to increase its oil production target by 1 million barrels a day later this year, despite criticism that the move was more symbolic than significant given the cartel has been exceeding the new quota since the beginning of the year.

Indonesia's Purnomo Yusgiantoro, OPEC's president, said the decision, which was a consensus of the 11 members of the cartel, will take effect Nov. 1.

"It's a gesture of goodwill to the consumers that we want lower prices," Algerian Oil Minister Chakib Khelil said.

But Leo Drollas, chief economist at the London-based Center for Global Energy Studies, said the decision was irrelevant.

"It's a PR exercise to prove to the consumer that OPEC actually likes them, " he said. "It's not going to help the market at all."

The move will increase OPEC's self-imposed output limit for all its members, except Iraq, from 26 million barrels a day to 27 million barrels, but the cartel is already producing 27.4 million barrels and accounts for one-third of the world's oil supply.

Crude prices in New York and London climbed to record highs earlier this summer, but have eased in recent weeks.

A proposal by the cartel's board of governors to increase the price band for its basket of crudes, currently at $22 to $28, will be made at a meeting Dec. 10 in Cairo, Egypt. Prices have long been well above the upper end of the band, which is the cartel's preferred selling range. OPEC's basket price, currently in the $39 a barrel range, is lower than prices in the U.S. because that market require a higher grade of product.

Some countries, including Nigeria and Libya, had sought an increase in the band along with production targets.

Purnomo said the consensus by OPEC members was to wait until Cairo to make a decision. He did say why when asked.

Energy economist and industry analyst A.F. Alhajji said Libya, Nigeria and Venezuela had sought a price band increase for economic reasons.

"(They) want higher price bands because they don't have spare capacity and, subsequently, higher prices mean more money for their coffers," he said.

Saudi Oil Minister Ali Naimi reiterated that prices for oil remained too high in the wake of voracious demand by China and the United States. He said Saudi Arabia has 1.5 million barrels of spare capacity.

Abdullah bin Hamad al-Attiyah, Qatar's oil minister, said that raising the output target would result in stability.

"We believe that there is more oil in the market, we believe that all this production will give more stability to the market," he said.

Purnomo said OPEC has 1.5 million barrels of spare capacity that it can put on the market when needed.

"Saudi Arabia will be able to do it and some of the other Gulf countries should be able to do it," he told reporters.

The decision doesn't apply to significant oil producers like Russia and Norway, the world's second- and third-biggest producers who are not OPEC members.

Purnomo urged them to follow OPEC's lead, but Russian Oil Minister Andrey Greus didn't commit.

"We are interested in the stability of prices and more predictability," he said through a translator.

Thorhild Widvey, Norway's oil minister, who will speak to OPEC this week, has said the Nordic country, which produces approximately 2.9 million barrels a day, has no spare capacity.

World demand for oil has been voracious, led in part by China's expanding economy and continued demand in the United States. Oil prices have soared because of the extremely thin margin of spare output capacity worldwide and fears of supply disruptions around the globe.

OPEC's director of research, Adnan Shihab-Eldin, said he thought oil prices weren't on a permanent move upward.

"Once geopolitical concerns subside, we believe that these shifts will subside. We have to be patient, to wait," he said, adding that crude stocks "will definitely be normal in the coming winter."

OPEC will meet with energy industry leaders, including oil companies and agencies, on Thursday and Friday. The cartel's next regular meeting will be in Iran in March.