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OPEC To Increase Oil Supply

OPEC logo on a oil barrel with an oil rig in the background
AP / CBS
OPEC agreed Wednesday to increase its production quota by half a million barrels a day in an effort to cool high crude costs that have dampened the global economy.

The Organization of Petroleum Exporting Countries said its output ceiling will rise from 27.5 million barrels to 28 million as of July 1, and that it will consider another 500,000-barrel increase later this year if prices don't fall.

Analysts called the move purely symbolic, since the group already is exceeding the higher quota, and said it didn't ease market fears of tightening oil supplies.

The group said it also agreed on a new, larger oil basket — the combination of crude oils that OPEC uses as its price gauge — that would increase from seven types of crude to 11.

"I think we are continuing with our protection of the market," said OPEC President Sheik Ahmed Fahd Al Ahmed Al Sabah. "There is enough supply in the market. We are confident we can reach the fourth quarter with enough supply."

OPEC spokesman Omar Farouk Ibrahim said the group's 11 members called for "reasonable prices consistent with economic growth."

"The market continues to be well-supplied," he said. "However, world crude prices remain high and volatile as a result of concern over lack of world refinery capacity. The situation has been further exacerbated by geopolitical developments."

Crude prices have been hovering around $55 per barrel, and the group was working to get them back below $50. But analysts expressed skepticism that lifting the ceiling would give any real relief to consumers or ease market fears of a tightening supply, since OPEC already is pumping more than the level to which the quota would be raised.

Oil markets held their gains. Light, sweet crude for July delivery rose 50 cents to $55.50 a barrel on the New York Mercantile Exchange. On the International Petroleum Exchange, July Brent was up 65 cents to $54.38 a barrel.

"Today's OPEC meeting is a past story, really," said Peter Gignoux, an analyst with New York-based GDP Associates. "At the end of the day, we have a demand issue, not a supply one."

"It's unlikely this will have a major effect in the short-term, as we believe OPEC has limited capacity to increase production," added Daniel Hynes, an energy analyst with Australia's ANZ Bank.