Vienna (Platts)--11Sep2007

OPEC sprang a surprise at its Tuesday talks in Vienna with an
unexpectedly large increase in official crude production levels. From November
1, the group's official target will rise to 27.25 million b/d, 1.45 million
b/d more than the previous 25.8 million b/d target set in February.
     The increase is designed to legitimize close to 1 million b/d of current
overproduction and add an additional 500,000 b/d of physical supply.
     OPEC's official communique announced an increase of 500,000 b/d "in the
volume of crude supplied to the market" but did not say what the new
production target would be. However, OPEC secretary general Abdalla el-Badri
said the new target was 27.25 million b/d.
     Although talk of a 500,000 b/d increase seemed to be on the cards as the
formal meeting started, ministers had been giving little away in public and
the size of the increase in the formal target had not been expected.
     The mechanics of the deal will see the group establish a new baseline of
26.75 million b/d for the increase, based on estimates by secondary sources of
the group's actual output of August, OPEC's research chief Hasan Qabazard
said. From this base, the additional 500,000 b/d has been shared on a pro rata
basis between the ten countries.

     US URGES ACTION
     Speaking in Washington ahead of the OPEC decision, US energy secretary
Samuel Bodman Tuesday urged OPEC to increase production, saying failure to do
so could stifle US and world economic growth.
     Lower economic growth is "not in the interest of suppliers," Bodman told
reporters. He added that an increase in supply "would help" curb crude prices,
which have been inching up toward $80/barrel in recent weeks.
     The price increases seemed to stem from a combination of supply not
meeting demand and "fear in the market," Bodman said. "Suppliers have had
great difficulty keeping up with demand," he said, adding that OPEC had been
"trying to strike a reasonable balance in a complicated world."
     Lawrence Eagles, head of the International Energy Agency's Oil Markets
Division, welcomed the increase. "It's an indication that OPEC is sensitive to
the recent tightening of the market, and we hope they're going to continue
responding to market signals," he said. "It's probably a smaller increase than
we would have liked but probably more than the market was expecting a few days
ago," he added.
     The specific baselines and new production targets for the individual
countries were not disclosed.
     The agreement to raise production came despite public statements by most
OPEC ministers in the days prior to the meeting that they saw no shortage of
oil on world markets.

     SAUDI SILENCE
     Tellingly, Saudi Arabia did not declare its hand publicly. Nor did Saudi
officials comment on a September 7 report from US-based analysts PFC Energy
saying Saudi sources had been signaling that OPEC might need to consider
raising production by between 500,000 b/d and 1 million b/d.
     In the event, with oil prices riding close to record highs, OPEC's formal
communique said the group had moved to boost supplies to the market to counter
tightness in US product markets and in light of the shift of the futures
market into backwardation, which encourages consumers to draw on oil stocks.
     "The conference reviewed the current oil market conditions and prospects
and, once again, observed that action taken by OPEC member countries to
increase production over the preceding several years has led to a comfortable
build-up in inventory levels, especially of crude," it said.
     "It was, on the other hand, noted that ongoing tightness in the US
products market continues to affect the level of product stocks and prices.
The conference further observed the recent shift of the forward market into
backwardation and its implications on stocks. It also noted that the
high-demand winter season necessitates keeping the market adequately
supplied."

     ANGOLAN QUOTA LOOMING
     OPEC's newest member Angola, which joined the group from the start of
this year, remains outside the quota system for the time being, but not for
much longer.
     Badri said Angola, Africa's second-biggest and fastest-growing producer,
would be included in the quota system from the beginning of 2008. Badri said
he did not know what level of production Angola might be asked to adhere to.
"For now we don't have a target," Badri, who visited Angola last month, said.
     Earlier Tuesday, Manuel Vicente, head of Angolan state oil company
Sonangol, said the country's current production was 1.6 million b/d and would
rise to 2 million b/d by the end of the year.