NEW YORK – OPEC Thursday agreed to raised output by two million barrels a day next month, at the lower end of the market's expectation, but made the impact it was hoping for as oil prices sank.
"It will send a very, very strong signal to the market," said Saudi Arabian Oil Minister Ali al-Naimi. He said the extra August increment was not negotiable on the downside and could even be altered higher.
The 11-member Organization of the Petroleum Exporting Countries (search) reached a compromise agreement to raise output by two million barrels a day and to add a further 500,000 barrels a day from Aug. 1. OPEC has been under enormous pressure from consumer countries worried about the impact of inflated energy costs on economic growth. For their own part producers do not want prices at heights that put fuel demand at risk.
At first sight Thursday's deal lifting group limits by eight percent, to 25.5 million barrels daily from July, 1 was a disappointment for those expecting OPEC to deliver more immediately.
But oil prices fell on the view that OPEC's core Gulf producers are serious about cheaper oil. U.S. crude was off $1.63 a barrel at $38.33 on the New York Mercantile Exchange (search).
"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 Emiratis 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 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 group output already is at official new quota limits.
Regardless of their new allocations, Saudi Arabia and the United Arab Emirates confirmed to reporters 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 Naimi reiterated that Riyadh was pumping 9.1 million barrels a day, an addition of about 700,000 bpd. The UAE is adding 400,000 bpd.
OPEC officially aims to keep prices within a range of $22 to $28 for its benchmark blend of crudes. OPEC delegates said Thursday the group was not changing its preferred price target. However, prices have exceeded the upper limit since December.
One oil analyst predicted little immediate downward effect on prices.
"I think it is a disappointment to the market because the market was expecting 2.5 million barrels, as the Saudis announced earlier," said Falah Aljibury, an energy consultant based in Alamo, Calif.
However, the need for OPEC to signal that it would add barrels of fresh oil to the market was even more important than a higher production ceiling, Aljibury said.
Consumers won't be paying less for gasoline anytime soon, as other factors such as refinery constraints and accelerating demand during the summer driving season in the United States will have an effect at the pump.
"Gasoline prices are still going to stay high," said Jamal Qureshi, of the Washington-based consultancy PFC Energy (search).
Reuters and the Associated Press contributed to this report.