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Last Updated: Wednesday, 15 September, 2004, 22:10 GMT 23:10 UK
Opec to lift production ceiling
A Saudi oil worker
Opec's target price has been below the market price for months
Oil producers' cartel Opec has agreed to raise its production quota by 1 million barrels a day, taking the daily limit to 27 million barrels.

Opec ministers meeting in Vienna also decided to leave their oil price target range unchanged at $22 to $28 a barrel.

The higher production ceiling is scheduled to take effect in November.

But as Opec's daily output is already running at about 28 million barrels, it is unclear whether the new quota will result in extra production.

Price move

This is a signal to the market not a change in total output
Bijan Zanganeh, Iranian oil minister

US crude oil prices fell on Wednesday, dropping 81 cents to $43.58 a barrel.

Oil analysts said this reflected a dip in production in the Gulf of Mexico, where many oil facilities have been temporarily shut because of Hurricane Ivan, rather than a response to Opec's decision.

Eight refineries in Louisiana and Texas have been fully closed ahead of Hurricane Ivan's expected arrival on land on Thursday morning. A further four have been partially closed.

The affected refineries account for 13% of US refining capacity.

Opec members said they wanted oil prices to fall.

"This is a signal to the market, not a change in total output," Iranian oil minister Bijan Zanganeh said of the Opec decision.

"It will have a psychological effect on prices."

This is a signal that they want prices to go down
Adam Seminski, Deutsche Bank

Saudi Arabian oil minister Ali al-Naimi denied that Opec had been forced to act to prevent prices spiralling out of control.

"We are not going to be pushing oil that is not wanted," he said. "If there is no shortage in the market, then Opec has not lost control."

Clear signal

Analysts said Opec's decision showed that the cartel would like prices to fall.

"This is a signal that they want prices to go down," said Adam Seminski at Deutsche Bank.

"What we really need is more spare capacity and less sour crude for prices to go down."

World oil production is struggling to keep pace with soaring demand from the US and China, making prices highly sensitive to any development that could reduce supplies.

Oil refinery
Hurricane Ivan has forced the closure of several US refineries

Last month, the threat of supply disruptions in Iraq and Russia drove US crude prices to a 21-year high, just short of $50 a barrel, prompting fears that higher energy costs would dent global economic growth.

Prices have since fallen back, but remain 30% higher than they were at the beginning of the year.

Opec president Purnomo Yusgiantoro said on Wednesday that between $10 and $15 of the current US oil price reflected geopolitical concerns and speculative trading.

Julien Seetharamadoo at Capital Economics said he expected higher production quotas, combined with a reduction in demand for oil in 2005 as the economy slowed, to bring prices down.

"If oil prices do not fall much further in 2004, they should at least fall in 2005, as prices move more in line with economic fundamentals."

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