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OPEC to Increase Production by 1M Barrels

Posted on: Wednesday, 15 September 2004, 06:00 CDT

VIENNA, Austria - OPEC will increase its oil production by 1 million barrels a day later this year in a move widely viewed as more symbolic than significant - given that the cartel is already exceeding the new quota.

Kuwaiti Oil Minister Sheik Ahmad Fahad al-Ahmad al-Sabah said Wednesday the cartel agreed to the decision to raise output by nearly 4 percent, adding it would take effect Nov. 1.

"We will give a signal to the market that we are working hard for the stability of the market," he said.

The decision 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.

"It's a gesture of goodwill," Algerian Oil Minister Chakib Khelil told the Associated Press.

OPEC's current price band is $22 to $28.

A proposal by the cartel's board of governors to increase the price band will be made at a meeting Dec. 6 in Cairo, Egypt.

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.

Some OPEC members want the band increased, including Libyan Oil Minister Fathi bin Shatwan.

Shatwan said he wants that range to increase to $28 to $35 a barrel.

Nigeria's OPEC representative, Edmund Dakoru, said he wanted the price band raised to $30 to $40.

World demand for oil has been voracious, led in part by China's expanding economy and continued demand in the United States.

But analysts said the global supply cushion is thin because OPEC vastly underestimated the growth of demand this year. Now it seems the group lacks the ability to increase production quickly enough to bring prices down.

Oil prices have soared in recent months because of the extremely thin margin of spare output capacity worldwide and fears of supply disruptions around the globe.

OPEC will meet with energy industry leaders, including oil companies and agencies, on Thursday and Friday.

Elsewhere Wednesday, traders remained wary of Hurricane Ivan, which appeared to be heading toward the United States. There are several oil and natural gas rigs in the Gulf of Mexico and operators have already evacuated most of them, cutting production in the process.

About 6 percent of U.S. refining capacity has been shut down ahead of the storm, one of the fiercest in recent history. The U.S. Minerals Management Service said about 60 percent of oil production and 30 percent of natural gas production had been halted.

Light sweet crude futures for October delivery rose 52 cents to settle at $44.39 on the New York Mercantile Exchange Tuesday.

Wednesday morning, U.S. crude futures were up 11 cents at $44.50 a barrel, while Brent crude was up 9 cents at $41.82 a barrel in trading on London's International Petroleum Exchange.

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