Opec agrees output boost

Very few Opec members have spare capacity

Opec's ministers have agreed to increase the amount of oil they produce to try and bring the price of a barrel down.

Members of Opec, made up of the world's major oil producers, have come under pressure to do something to stop the recent sharp rises in the cost of a barrel.

Consumers across the world, such as in the UK and the US, have been hit by rapid rises in the price of petrol as a direct result of the oil price rises in recent months.

The spiralling cost of the fuel has also threatened to hit industry and has led to growing political pressure, especially in the US ahead of the Presidential election.

The deal agreed is for output to be increased by 708,000 barrels to 25.4 million barrels per day (bpd) from 1 July, OPEC Secretary General Rilwanu Lukman said.

But there were mixed views as to whether the 3% rise - agreed at an unusually brief 90-minute meeting - would be enough to bring down the price of oil.

Following the news, crude futures in New York were trading up 50 cents at $31.15 a barrel - well above the $25 target figure.

Analysts said that an increase of 700,000 bpd would only add an estimated 200,000 fresh bpd to the market.

This is because OPEC's 11 members are already exceeding their quotas by a total of roughly 500,000 barrels a day.

Petrol prices

Oil prices this week have hit their highest close since 7 March.

We need to find stability in our oil prices because right now, consumers are hurting

US energy secretary Bill Richardson

Mr Lukman said Opec would take further action to raise output if oil prices remained too high.

"We will do whatever it takes to bring it down to a level we consider more reasonable," he said, adding that the target price was about $25.

He said that non-OPEC producers - such as Mexico and Norway - would add a further 200,000 to 300,000 bpd of new oil to the market.

The knock-on effect of recent price rises has been a sharp increase in petrol prices.

UK consumers have seen the price of a litre of petrol rise from 75p in January to 86p and higher in June as the shortage of oil has been exacerbated by the weakness of the pound against the dollar.

Opec's fear is that if consumers find oil too expensive, they will switch to other fuels.

After the first production boost three months ago, world oil prices fell briefly, but soon began to creep up again.

Chances of an agreement

Opec countries currently produce 24.7 million barrels of oil daily.

The US government is understood to have favoured an increase of about one million barrels, but declined to confirm this.

"We need to find stability in our oil prices because right now consumers are hurting," energy secretary Bill Richardson said.

On Monday, the US Energy Information Administration reported that gasoline prices had reached a national average of $1.68 a gallon, 56 cents a gallon higher than last year.

Iran in agreement

In March, at their earlier meeting to try and get a deal to cut prices, Opec members had faced difficulty in reaching an agreement, as Iran was reluctant to bow to US pressure to raise output.

This time, Iran has indicated that it has already agreed to increase output.

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The Saudi oil minister wants to strike a balance

"Saudi Arabia and other major oil producers are not happy with the artificial high prices that might be harmful to producers and consumers," Saudi oil minister Ali Naimi has said.

Opec raised production by 7% or 1.7 million barrels per day in March under heavy pressure from the US as oil prices hit $34 a barrel there.

Opec members are Saudi Arabia, Iran, the United Arab Emirates, Kuwait, Qatar, Nigeria, Libya, Algeria, Venezuela and Indonesia.