AMSTERDAM, Netherlands – OPEC is "deeply concerned" about the recent rise in oil prices but deferred making a decision on increasing its output target until its members meet next month, the group's president said Saturday.
Under intense pressure to pump more oil to reduce crude prices, the Organization of Petroleum Exporting Countries (search) discussed a Saudi proposal for an 8.5 percent increase in the production target. But Saturday's talks were informal, and the group is to decide whether to follow the Saudi lead when all of its members meet on June 3 in Beirut, OPEC president Purnomo Yusgiantoro (search) told a news conference.
"We are deeply concerned about the continuing rise of oil prices in recent weeks," Yusgiantoro said.
Yusgiantoro stressed that the current high prices are not the fault of OPEC nor the result of inadequate supply, but were caused by several factors: bottlenecks in the production of gasoline, geopolitical tensions, an unexpected strength in demand and heavy speculation.
Oil prices fell by as much as $1 per barrel after Saudi Arabia said Friday it would push OPEC to raise its daily ceiling by 2 million barrels in an effort to safeguard global economic growth and ease concerns about possible shortfalls in supply.
At least nine of the 11 members of OPEC arrived in Amsterdam to discuss the proposal ahead of a conference of energy producers and consumers.
"We do encourage and support any proposal to increase the production ceiling level. We believe that the high oil price harms economic growth. We believe we ought to try to preserve the stability of the market," Iraqi Oil Minister Ibrahim Bahr al-Uloum (search) told reporters.
An unforeseen burst in global demand has stretched crude supplies, and concerns about security problems in the oil-rich Middle East has contributed to turmoil in the market. Crude prices have soared above $40 a barrel, and OPEC, which decided only in March to cut its official output, has come under growing pressure from the United States and other consuming nations to boost production as soon as possible.
OPEC supplies about a third of the world's oil. It has a daily output target of 23.5 million barrels, but the group's members are already pumping at least 2 million barrels above that level. Given this amount of overproduction, analysts have questioned whether an increase in OPEC's ceiling would translate into additional physical barrels of crude hitting the market.
Most OPEC members are pumping as much crude as they can, and Saudi Arabia is the only member with significant untapped production capacity. The Saudi Oil Ministry said in a statement that it had already pledged to increase its production to around 9 million barrels a day as of June 1. The Saudi government is currently believed to be producing between 8.4 million and 8.6 million barrels a day.
News of Saudi support for a higher ceiling sent energy futures tumbling Friday.
The price of light crude for July delivery on the New York Mercantile Exchange dropped as low as $39.65 per barrel, before settling at $39.93, a decline of 87 cents. Since hitting an all-time high of $41.85 on Monday, U.S. crude has fallen nearly $2, or 5 percent, amid rising expectations that OPEC would raise production.
In London, North Sea Brent crude settled at $36.51, down 75 cents on the International Petroleum Exchange.
Although high oil prices are a bonanza for OPEC in the short term, the group worries that they could hurt long-term demand for oil as energy consumers seek alternatives to crude. Costlier oil also makes it more attractive for non-OPEC producers such as Russia and Mexico to pump more crude of their own, raising the risk of a supply glut and a possible crash in oil prices.
The Saudi Oil Ministry's proposal for an increase in OPEC's ceiling revealed the depth of its concern. Less than two weeks ago, Saudi Oil Minister Ali Naimi surprised markets with a suggestion that OPEC raise its ceiling by 1.5 million barrels. The latest Saudi proposal goes even further, by adding 500,000 barrels to the proposed target.
Iraq's al-Uloum said that Iraq plans to export 3 million barrels a day by the end of the year, in spite of a recent sabotage attack that hampered the flow through the country's main export pipeline. Iraq expected to export 1.8 million barrels a day in both May and June, roughly in line with March and April, he said.
Iraq hasn't participated in OPEC's output agreements since the United Nations imposed economic sanctions after Saddam Hussein (search) invaded Kuwait in 1990.