OPEC Agrees to Boost Output

"The industry is very scared of the second half" of the year, said an official at the meeting, who demanded anonymity.

Dakouru, the Nigerian oil official, said "the extra oil will go a long way" toward meeting any concerns about winter supply.

In past years, OPEC output hikes have normally dampened prices, by sending the message that supply is available to meet demand.

This time though, the move only reflected realities -- members bound by the quota already produce about 700,000 barrels a day above the group's official ceiling.

And instead of taming markets, the timing of the increase raised questions about next time. Most forecasts predict even greater world demand in the future.

"Market reaction has been almost nil," said Frederic Lasserre, head of commodities research at SG Securities in Paris. "The market is very concerned that even the Saudis might be short of spare capacity by the end of the year."

Estimates vary but most surveys put OPEC's spare capacity between 1 million to 1.5 million a day. Most of it is Saudi oil, which needs more refining than the preferred "sweet" crude produced by some other OPEC members. Oil production by states outside OPEC is stagnating.

With western economies generally expanding, demand soon could outstrip supply. The economic boom in China is already sucking up more than a third of the world's crude supplies. India's hunger for oil is also on the rise. At some point -- no one has come up with a firm figure -- the market would price oil so high that economies would begin to contract and demand would fall.

"We have to face facts. The International Energy Agency has raised demand estimates to 84.3 million barrels per day and that exactly equals worldwide daily consumption," said analyst Phil Flynn in a newsletter. "We're at total equilibrium."

"OPEC has reached its production limits," Algerian Oil Minister Chakib Khelil said over the weekend. "If it came to a crunch, it has capacity for 1 million barrels."

The Energy Information Administration, the statistics arm of the U.S. Department of Energy, said Tuesday that OPEC's spare capacity fell to 1 million to 1.5 million barrels a day in February, not enough to cover a loss of Iraqi output.

The EIA and the International Energy Agency, which monitors oil market conditions for the Organization of Economic Cooperation and Development, both raised their forecasts for 2005 oil demand last week, drawing the picture of a market in which consumption will continue to strain supply.

After weeks of oil at above $50 a barrel, Washington is calling on producers to take steps to lower the price. The White House complained Tuesday that rising energy costs were a drag on the U.S. economy.

White House press secretary Scott McClellan said the administration was telling oil producers "about the importance of acting in ways that support our growing global economy and our growing U.S. economy."

Several oil ministers at the Isfahan meeting said Tuesday that OPEC members had recently received calls from U.S. Energy Secretary Sam Bodman and other senior American representatives.