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Crude oil falls after report of higher output

Commodities * Crude oil for September delivery fell US$0.23, or 0.9 percent, to US$26.54 a barrel on the New York Mercantile Exchange on Friday. * Prices were down 4.6 percent this week, the biggest weekly decline in two months. * OPEC won't raise quotas until the price of its benchmark oil index rises above US$28, an OPEC official said.

Crude oil fell after Petrologistics Ltd, an industry consulting firm, said OPEC members boosted output by 1.7 percent this month.

The increase meant the producers exceeded their official quotas by 8.7 percent, according to the report. OPEC's new secretary-general, Alvaro Silva, said prices must rally about 12 percent from current levels to trigger a rise in quotas.

"The trend is clear: cheating is increasing," said Aaron Kildow, a broker at Prudential Securities Inc in New York. "OPEC's credibility is hurt by this."

In London, the September Brent crude-oil futures contract fell US$0.23, or 0.9 percent, to US$25.03 a barrel on the International Petroleum Exchange. Prices were down 5.4 percent this week.

The 10 OPEC members with quotas, all except Iraq, pumped 23.6 million barrels a day in July, up from 23.2 million in June, said Conrad Gerber, president of PetroLogistics. Supply from Iraq was steady at 1.6 million barrels a day. Total OPEC output rose to 25.2 million barrels a day, PetroLogistics figures show.

OPEC won't raise quotas until the price of its benchmark oil index rises above US$28 a barrel, Silva said in a telephone interview. OPEC's basket of crude-oil grades rose 33 percent this year to US$24.98 a barrel as of yesterday.

"We cut when the prices go down to US$22 and if they went up to US$28 we like to take measures," Silva said.

OPEC is scheduled to meet on Sept. 18.

"They might not want to officially raise quotas because some countries are angling for a disproportionate increase," said William Brown, president of WH Brown & Co, an oil consulting firm in New York. "Algeria, Nigeria and Venezuela all want a larger share."

Algeria has asked OPEC colleagues for a greater share of the group's production, officials from the organization said earlier this month. The North African nation's quota allows it to pump crude oil at 69 percent of its daily capacity, the lowest rate among OPEC's 11 members.

Oil production from non-OPEC countries, representing about two-thirds of the world's total, will rise by 1.11 million barrels a day this year and by 700,000 barrels a day in 2003, the International Energy Agency said earlier this month.

"OPEC sales will rise in the second half of the year whether they increase quotas or not," Brown said.

Production worldwide averaged 75.3 million barrels a day in June, according to the Paris-based agency, which advises 26 nations, including the US, on oil policy.

Silva plans to visit Moscow next month to discuss measures to support prices as Russia, the world's second-biggest oil producer after OPEC-member Saudi Arabia, increases output.

"Silva's visit to Moscow is probably a sign of weakness not strength," said Phil Flynn, a senior energy trader at Alaron Trading Corp in Chicago. "Russia has already made it clear that it plans to increase output. The best that can be expected from OPEC's point of view is a statement that papers over the cracks in their relationship."
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