KEY POINTS:
Saudi Arabia persuaded Opec to raise oil output by 500,000 barrels per day today in a gesture to consumer nations worried by the economic impact of US$77 ($112.09) oil and rapidly diminishing fuel stocks.
After seven hours of talks, Opec officials announced the hard-won deal, effective November 1
Before the meeting Libya, Algeria and Venezuela were inclined to resist the proposal put forward by Saudi Arabia and its Gulf Arab neighbours.
"We think the market is a little bit tight so we are responding positively. We are also taking into the consideration as Opec the concern of the consumers," acting Kuwaiti Oil Minister Mohammad al-Olaim told reporters.
US crude oil was down 29 cents at US$77.20 after the deal but still within sight of its record high of US$78.77 a barrel.
Opec's move followed months of calls for more oil from top consumer the United States and the International Energy Agency that represents the interests of 26 industrialised nations.
"It's the responsible thing for Opec to do given the market needs more oil with the higher seasonal requirements ahead," said Gary Ross, CEO at Pira Energy Consultancy.
The increase comes on top of current Opec supplies.
It reverses most of the 1.7 million bpd of cuts agreed by the oil exporter group since Oct 2006 because the 10 members subject to output limits were already pumping almost one million bpd above their nominal ceiling of 25.8 million.
Opec, shipping some 30 million barrels per day into the 86 million bpd global market, has been trying to make sense of conflicting economic data leading into peak winter demand.
Industrialised consumer nations are forecasting their crude oil stocks will fall to the bottom of the five-year average range by January unless Opec pumps more crude oil, and fast.
But uncertainty over the US economy -- last month employers cut jobs for the first time in four years -- has cast doubt over oil demand growth in the world's top consumer.
The views of the Gulf Arab states, particularly the world's biggest exporter Saudi Arabia, are key to Opec policy decisions. They straddle more than half of Opec's proven oil reserves and have almost all the organisation's spare production capacity.
An increase of 500,000 bpd should placate consumer nations without flooding the market and causing a price collapse.
Before the meeting some ministers expressed concern credit turmoil stemming from US subprime loans might hit the real economy.
"The ministers are worried about financial markets and also the backwardation in US crude oil futures so it is a very sensitive situation," Opec Secretary-General Abdullah al-Badri said.
US crude oil for October delivery costs more than later months, a "backwardated" price structure that may point to a tight market and encourage refiners to draw oil from their stocks.
Demand forecasts for the final quarter of the year show an increase of up to 2.0 million bpd. At the top end, the International Energy Agency sees consumption rising to 88.1 million bpd. Opec puts the figure at 87.08 million bpd.
US Secretary of Energy Sam Bodman told reporters in Florida on Monday he had encouraged Opec to increase supplies.
"They heard. They were courteous," he said.
Simon Wardell, energy analyst at Global Insight, said even with extra Opec oil global crude stocks could fall by 100 million to 150 million barrels by the end of the year.
"That will push global inventories down to their lowest levels since 2004, with a risk that they could fall further if there is a cold winter," he said.
- REUTERS