Opec agrees to boost oil output

WORLD oil prices were back above $40 a barrel today after an Opec agreement to boost production failed to soothe concerns about tight supplies.

In a crunch meeting in Beirut, the 11-member cartel decided to lift output by a smaller-than-expected 2m barrels a day from 1 July, promising to add a further 500,000 in August. It will meet again on 21 July to review policy.

US crude futures rose 40 cents to $40.39 a barrel on news of the deal, having hit a record high of $42.45 early yesterday. In London, Brent jumped 47 cents to $37.33.

The deal raises formal output limits to 25.5m barrels but will disappoint those expecting more. It appears to be a compromise between Opec kingpin Saudi Arabia and Kuwait's Oil Minister Sheikh Ahmad al-Fahd, both of whom were pushing for an extra 2.5m barrels, and the cartel's second-biggest producer, Iran, which fears a price collapse.

'If this is ratified it is bullish,' said Nauman Barakat at brokers Refco. 'Forget the promise of another 500,000, this is just plain two million. The market was convinced it would get 2.5m so this could be a red rag to the bulls.'

Kevin Norrish at Barclays Capital said traders were looking beyond the talk of quota increases for news of how much extra supply would be available to take the heat out of the price rally.

Saudi and the United Arab Emirates have already pledged to pump a combined 1.1m barrels of new supply in June, regardless of the Opec agreement. The cartel is already busting its existing official supply limit by more than two million barrels and the two Gulf producers are the only Opec members with any significant spare capacity.

But analysts doubt whether the supply increase will rein-in oil prices