OPEC Agrees To Up Oil Output Target

OPEC representatives have agreed to raise their formal target for oil production by 6 percent, or 1.3 million barrels a day, and urge member countries to comply more strictly with their new quotas, the group's president said Thursday.

Delegates from the Organization of Petroleum Exporting Countries are fearful of oversupplying the market ahead of a seasonal, post-winter dip in demand. By boosting the quotas of all its member countries, the group aims to legitimize some of its current overproduction. At the same time, OPEC insists that members rein in much of the remaining excess, OPEC President Rilwanu Lukman told reporters.

The new target of 23 million barrels will take effect Jan. 1, he said.

The delegates were to ratify the decision at a formal session later in the day at the cartel's headquarters in Vienna, Austria.

Analysts estimate that OPEC is producing an estimated 2.5 million barrels a day above its existing target. This gap between OPEC's target and its actual output widened during the autumn and has led many observers to question OPEC's credibility.

OPEC supplies about a third of the world's crude.

Several delegates expressed concern earlier that quota-busting by the cartel's members creates a risk that crude prices might collapse when demand for home heating oil declines with the warmer springtime weather in major importing nations of the Northern Hemisphere.

Saudi Arabia, OPEC's most powerful member, urged the group to curb excess production by up to 2.0 million barrels a day. At the same time, the Saudis want OPEC to raise its output target by up to 1.5 million barrels a day.

Due to the current level of overproduction, the Saudis argued that a quota increase would occur on paper only and add no fresh barrels to the market. Saudi Arabia hopes this two-pronged approach will help restore some of the reputation for reliability that OPEC lost in recent months because it wasn't complying with its own quotas.

OPEC needed to do something to salvage its credibility in the market, said Falah Aljibury, an energy consultant based in Alamo, Calif.

By raising its output target to "legitimize" some excess production while also enforcing better compliance with its quotas, the cartel sends a message that it is in better control of its own affairs. With markets thus reassured, prices should fall slightly now that OPEC has adopted the Saudi plan, Aljibury said.

In New York, January contracts of light, sweet U.S. crude rose 25 cents a barrel to $27.65 in early trading. Contracts of North Sea Brent crude for January delivery were 15 cents higher at $26.40 a barrel at midday in London.

Most delegates acknowledge that quota-busting is a central issue. The group now pumps an estimated 12 percent more than its official target of 21.7 million barrels a day.