Saudi plan offers relief for oil market

BEIRUT, Lebanon -- Several OPEC members supported a Saudi plan Wednesday to raise the oil production ceiling by 10.6 percent in hopes of calming jittery markets and reducing crude prices from record heights.

At the same time, Saudi Arabia sought to ease fears that its vital oil facilities are threatened by terror attacks after a suspected al-Qaida assault over the weekend that killed 22 people at the country's oil hub of Khobar.

The Khobar attack -- which killed 22 people, mostly foreign oil workers -- stunned markets that were already nervous about stretched oil inventories and Middle East tensions.

U.S. crude prices shot up to record levels in response but retreated by 4 percent Wednesday as Saudi Oil Minister Ali Naimi stressed that the kingdom was taking adequate security measures.

"I assure you that the kingdom and all OPEC members are concerned ... and we don't want high prices," he said in a speech at the Beirut offices of the U.N. Economic and Social Commission for Western Asia.

Representatives from the Organization of Petroleum Exporting Countries arriving in Beirut expressed a common desire to send a strong signal to oil markets that the group would boost production.

They gathered for joint talks ahead of a formal meeting today on OPEC's production policy.

Kuwait, Qatar and Nigeria backed the Saudi plan to raise OPEC's production ceiling to 26 million barrels -- an increase of 2.5 million barrels.

Under pressure from the United States and other major oil importers, Saudi Arabia has already boosted its output by 600,000 barrels a day, independently of OPEC.

The United Arab Emirates' oil minister announced his country would boost production by more than 400,000 barrels per day. As he arrived at Beirut airport, minister Obaid bin Saif al-Nasseri said the hike aimed "to calm the heat of prices."

For the most part, such an increase would represent a return to a normal level of production for the United Arab Emirates after a lull in output due to maintenance at its oil facilities in April.

Kuwaiti Oil Minister Sheik Ahmed Fahd Al Ahmed Al Sabah said Kuwait would increase its output by 100,000 barrels later this month.

OPEC produces more than a third of the world's crude.

It is already pumping 2.3 million barrels above its current ceiling, and many of the group's members are already producing at close to their capacity.

OPEC president Purnomo Yusgiantoro of Indonesia said the cartel needs to assess each of its 11 members' ability to produce more.

"What we need is a volume that can give a really significant impact to oil prices," he said.

U.S. light crude oil for July delivery fell $1.93 to $40.40 per barrel in afternoon dealings in New York, a day after settling at $42.33 -- the highest settlement price in the contract's 21-year history on the New York Mercantile Exchange. In London, July contracts of Brent crude traded at $36.85, down $2.23 lower than Tuesday's closing price at $36.85.

A more radical proposal by Algeria for the Organization of Petroleum Exporting Countries to suspend its output ceiling altogether appeared to win no immediate backing.

Algeria's Oil Minister Chakib Khelil suggested that OPEC members temporarily "do away" with their individual production quotas, though he shook his head when asked if such a suspension would cause prices to fall.

"I don't think we will suspend the quotas," responded Kuwait's Sheik Ahmed. "I'm not a supporter of that idea, but we still support the idea of increasing to 26 million barrels."

Saudi Arabia, with the world's largest proven oil reserves, is OPEC's most powerful member. For this reason, a tremor went through the market after gunmen attacked a housing complex for foreign oil workers in Khobar, taking hostages in a standoff that ended Sunday when Saudi forces stormed the facilities. Three of the gunmen escaped.

"They've proven that they can't protect the people at the core of that industry -- at least the foreign element," said Jan Stuart, an analyst at the New York brokerage Fimat.

Saudi Arabia employs as many as 30,000 foreigners in its oil industry, and Stuart argued that the Saudi industry's flexibility and efficiency would suffer in coming years if many of these expatriates left the kingdom out of concerns for their safety.

Naimi insisted that his country could continue producing oil without the help of foreigners.

"There are those who believe that if five or 10 foreigners leave, production in the kingdom will stop. And this is all a wrong way of thinking. ... We have refineries that are run by Saudis," he said in his speech.

He said vital Saudi installations were under "intensive protection."