| Indonesian energy minister Purnomo Yusgiantoro (centre) chairs the opening session of the extraordinary Opec ministerial meeting in Beirut on Thursday. (AFP)
Beirut, June 3 (Reuters): Opec agreed on Thursday to raise output by two million barrels a day, at the bottom end of expectations, but made the impact it was hoping for as oil prices sank. The pact among the 11-member Organisation of the Petroleum Exporting Countries (Opec) promised to add a further 500,000 barrels a day from August 1.
“It will send a very, very strong signal to the market,” said Saudi Arabian oil minister Ali al-Nuaimi. He said the extra August increment was not negotiable on the downside and could even be higher.
“It’s a good agreement, we will be able to test the impact of the policy on the oil market before we meet again in July,” said Qatar oil minister Abdullah al-Attiyah. Opec meets again on July 21.
At first sight, the deal lifting formal group output limits by 8 per cent to 25.5 million barrels daily from July 1 was a disappointment for those expecting Opec to deliver more.
But oil prices fell on profit-taking from recent record highs and US light crude fell $1.26 to $38.70 a barrel, while London’s Brent crude slid 79 cents to $36.04.
“This is the first time in two years that Opec has set quotas at a level that reflects underlining forward demand for their oil,” said Marshall Hall of London’s Energy Market Consultants.
“We think prices could come off $5 a barrel in 30 days because the Saudis, the Kuwaitis and the Emirates will produce enough to ensure prices go down.”
The United States applauded the agreement, saying sufficient supplies were critical to sustaining economic growth.
“This welcome action demonstrates that producers are taking concrete and immediate steps to address the global oil supply needs,” said White House spokesman Claire Buchan.
Delegates said the pact was a compromise between Saudi Arabia and countries like Iran and Venezuela, which feared a Saudi proposal for an immediate 2.5 million barrels a day increment could trigger a big price collapse.
But the official details will make little difference to actual supplies from the cartel that controls more than half the world’s oil exports.
That’s because the group output is already at official new quota limits.
“For supply into the market, its irrelevant,” said Roger Diwan of Washington’s PFC Energy consultancy.
Regardless of their new allocations, Saudi Arabia and the United Arab Emirates confirmed to newspersons they would deliver about a million barrels daily of real extra oil in June.
The two countries are Opec’s only members with much spare capacity.
Saudi’s Nuaimi said Riyadh was pumping 9.1 million barrels a day, an addition of about 700,000 BPD. The UAE is adding 400,000 BPD. Holding bigger reserves than any other Opec country, Saudi is sensitive to the impact of high prices on long-term fuel demand.