A SURPRISE decision by Opec to raise its production quotas wrong-footed oil traders yesterday and sent the price of Brent crude tumbling below $24 per barrel.

Opec oil ministers yesterday agreed to raise their official quota ceiling by 900,000 barrels per day (bpd) to 25.4 million bpd. The decision, made at an emergency meeting at Opec’s Vienna headquarters, came with an official statement that Opec would reduce actual production from June 1 by 2 million bpd to 25.4 million bpd.

Anxiety over the mixed message from the cartel caused the Brent crude future contract to fall more than half a dollar to $23.70 as traders speculated that the Opec producers would fail to make any real cut in output. Opec has been producing well above the quota it had previously set in February, compensating for market disturbances, such as the Venezuelan oil strike and the war in Iraq.

However, the decision to raise its quota at the same time as it proclaimed an intention to cut production sent confusing signals to the oil market yesterday.

“The whole thing is a fudge,” said Julian Lee, of the Centre for Global Energy Studies (CGES), who speculated that anxiety about the return of Iraqi production was behind the Opec move. “There is a general desire to lock in a big market share within the Opec quota system before the return of Iraqi oil,” he said Iraq is a founding member of Opec but its participation in the quota system has been suspended since the first Gulf war and the imposition of UN sanctions.

Iraq is believed to have the capacity to export about 2 million bpd and the CGES reckons it was shipping about 1.5 million bpd before the outbreak of war. What remained unclear yesterday was the level of current Opec production on which the organisation made its decision to reset the quota.

Rilwanu Lukman, Nigeria’s Oil Minister, said the new quota would be assessed again when the organisation next meets on June 11.

He suggested that Opec’s current production estimate of 27.4 million bpd included Iraqi exports of about 1.9 million bpd in February and March. However, the new quota for June of 25.4 million bpd refers to the ten active member states, excluding Iraq.

On that basis, the cartel can continue pumping an extra 2 million barrels per day until Iraqi production is substantially restored. Mr Lee said that the deal cobbled together yesterday gives leading members of the cartel, such as Saudia Arabia, Iran and Kuwait, a high threshold from which they can make cuts when Iraq comes back on stream.

Iraq has traditionally had a quota equal to Iran and is likely to argue for parity if and when it returns to the fold over the next few months. However, the oil-dependent Opec states have enjoyed huge cash inflows from overproduction at high prices.

Behind yesterday’s move is anxiety about loss of revenue and market share to non-Opec producers, such as Russia, if they cut too soon.

The new quotas

Algeria 0.8 million bpd

Indonesia 1.3 million bpd

Iran 3.7 million bpd

Kuwait 2.0 million bpd

Libya 1.4 million bpd

Nigeria 2.1 million bpd

Qatar 0.7 million bpd

Saudi Arabia 8.3 million bpd

Venezuela 2.9 million bpd

Opec 10 25.4 million bpd

Iraq 2.0 million bpd

Opec 11 27.4 million bpd