June 7, 2011 / 11:02 AM / 6 years ago

UPDATE 5-Saudi upping oil supply, wants OPEC to increase

* Saudi June output to hit 9.5-9.7 mbpd

* Gulf Arabs want OPEC output target upped at least 1.4 mbpd

* Iran, Venezuela, Iraq oppose increase

(adds quotes para 7, 10, committee recommendation para 17)

By Amena Bakr and Alex Lawler

VIENNA, June 7 (Reuters) - Regardless of OPEC policy, Saudi Arabia is planning to lift oil output sharply this month to rein in high fuel prices.

Riyadh plans to pump another 500,000 barrels a day to reach at least 9.5 million bpd, its highest output for three years, a senior Gulf industry official familiar with Saudi oil policy told Reuters. The biggest producer in 12-member Organization of the Petroleum Exporting Countries, Saudi wants the group to lift formal output limits at a meeting on Wednesday to show consumer countries that it recognises the danger to the economy of energy inflation. Brent crude rose close to $117 a barrel on Tuesday.

Saudi has the support of its Gulf Arab allies Kuwait and the United Arab Emirates.

"There is a need for more supply in the market," Kuwait's Oil Minister Mohammad al-Busairi told Reuters. "I expect OPEC to increase output during this meeting but I am still unsure how much."

With economic data from the West indicating growth may be stalling, Riyadh is under increasing pressure from consumer goverments to act.

"With Libyan production offline for what we assume to be at least the balance of the year, Saudi is the market's `supplier of last resort' now more than ever," said Katherine Spector at CIBC World Markets.

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OPEC output vs target: r.reuters.com/zyg89r

OPEC could poor oil on troubled politics [ID:nLDE7560U7]

Insider TV link.reuters.com/ded99r

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SAUDI DOMESTIC USE RISING

The Gulf official said Saudi production was likely to average 9.5-9.7 million bpd in June. A Reuters estimate put output at 8.95 million bpd in May.

Saudi output was last as high in the middle of 2008 after oil prices set a record $147 a barrel, shortly before recession sent prices crashing.

"I think they're very concerned about the danger of industrialised ecnoomies going into a double dip and they feel that sustained high oil prices we've seen this year are not helpful," said Bill Farren-Price of Petroleum Policy Institute.

The extra Saudi supply won't all go for export. Direct crude burn at power plants to fuel summer air conditioning and higher refinery throughput for the return to service after maintenance of the Red Sea Rabigh refinery will soak up at least half the increment, Middle East analysts estimate.

CREDIBILITY

Riyadh's production intentions may overshadow an OPEC meeting which Gulf Arab producers want to restore credibility to the producer group's out-of-date supply limits.

The Gulf producers want, at least, to close the 1.4 million bpd gap between OPEC's two-and-a-half year old official production limit of 24.8 million bpd and actual output, estimated by OPEC in April at 26.2 million.

But they would prefer to go further to help meet an anticipated increase in demand in the second half of the year.

"The market will be tight," said UAE Oil Minister Dhaen al-Hamli.

"I expect demand to be strong in the third and fourth quarter, the demand will mainly come from Asia," said Kuwait's al-Busairi.

Ahead of the meeting, a committee chaired by Algeria and including Kuwait and Nigeria recommended a one million barrel a day increment.

Price hawks Iran and Venezuela oppose any increase. Even if they can be talked around they will find it hard to swallow any increment other than enough to legitimise actual current output.

Others too will need to be convinced.

"In my opinion the current level is not too high," said Iraqi Oil Minister Abdul-Kareem Luaibi. "Recent indications from the oil market as far as the stocks and supplies is good -- there is good supply."

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