OPEC on Thursday raised production quotas and pledged to make further increases to rein in the cost of crude, causing oil futures prices to fall for the second day in a row.
Although the group's meeting here didn't provide quite the kick to output that some had hoped for, it nonetheless helped soothe anxious traders enough to send the price of oil for July delivery down 68 cents to $39.28 a barrel on the New York Mercantile Exchange.
Oil had closed at a record $42.33 a barrel Tuesday.
The news from the Organization of the Petroleum Exporting Countries was bolstered by an Energy Department report showing that imports had boosted U.S. gasoline inventories and pushed crude oil stocks to their highest level in two years. Taken together, the rise in fuel supplies and the drop in crude costs could soon translate into lower prices at the pump, some analysts said.
"You have a decrease coming in the next 30 days, and I think you'll see prices dropping by the weekend in some cases," said Tom Kloza, chief oil analyst at the Oil Price Information Service. "I do think that by any standard, gasoline prices were excessive."
Market watchers were divided on the importance of the decision by OPEC, which increased its official production ceiling by 2 million barrels a day, or about 8%, starting in July, with plans to hike the quotas by an additional 500,000 barrels a day in August, if necessary.
The deal among OPEC nations appeared to reflect a compromise between Saudi Arabia, which had proposed an increase of 2.5 million barrels, and countries such as Iran and Venezuela that feared a sharp drop in prices. OPEC will meet again in Vienna on July 21 to review the new quota.
Because of rampant above-quota production, the new July ceiling of 25.5 million barrels a day is about equal to the group's actual output for April but below production rates from earlier this year, according to figures from Platts, an energy information service. The ceiling applies to all OPEC countries except Iraq, which pumps about 2 million barrels of oil a day.
Mark Baxter, director of the Maguire Energy Institute at Southern Methodist University in Dallas, wasn't impressed by OPEC's quota increase. "That's about what they're producing anyway, so it's not much of a change," he said.
Still, oil ministers made it clear in Beirut that they intended to pump oil at full tilt to force oil prices lower.
"We are very concerned about the present situation, and we are doing everything we can to help stabilize the market and restore reasonable prices," said OPEC President Purnomo Yusgiantoro, Indonesia's oil minister. As an organization, he added, "we are already producing at close to capacity."
During the meeting, two OPEC members that do have untapped capacity -- Saudi Arabia and the United Arab Emirates -- promised to put a combined 1.1 million extra barrels of oil on the market, starting this month.
"It's significant when Saudi Arabia says they're going to kick out more oil.... They're the Shaquille O'Neal of the oil industry," Kloza said. But, he added, "there's plenty of crude. Crude hasn't been a problem since March."
The real problem, he and others said, is a growing fear that a terrorist attack could disrupt production in a major oil-producing country. Those worries were made worse over the weekend, when attackers killed 22 people at a compound full of foreign oil workers in the Saudi city of Khobar.
"There has never been fear in the Middle East as there is at this point," said Hossein Kazempour-Ardebili, an advisor to Iran's Oil Ministry. Qatari Oil Minister Abdullah ibn Hamad al Attiyah estimated that psychological fears alone were inflating prices by $9 a barrel.
With Saudi Arabia facing increasing pressure from militants, the world's largest oil exporter tried to allay concern over the vulnerability of its oil facilities and the reliability of its supply. "I assure you that installations in the kingdom of Saudi Arabia are secure because they are under intensive protection to prevent such acts," Saudi Oil Minister Ali Ibrahim Naimi said in a speech Wednesday in Beirut.
Moaveni reported from Beirut and Douglass, a Times staff writer, reported from Los Angeles.