OPEC agreed yesterday to raise its quotas by 1.5 million barrels a day in an attempt to ease oil prices and fill the gap in supply caused by a strike in Venezuela.

World oil prices are widely expected to drop after the oil cartel said following an emergency meeting that it would increase output to make up for the loss of Venezuelan oil exports caused by the country's general strike.

International benchmark crude oil in New York and London jumped to highs of more than $30 a barrel in recent weeks, prompted by the loss of 2-2.5 million barrels a day of Venezuelan oil production and concerns over a possible war in Iraq.

The Organisation of the Petroleum Exporting Countries said it would raise its oil production to 24.5 millions barrels a day to "ensure adequate supplies of crude to consumers and restore balanced market conditions".

The deal will be effective from the start of February.

Oil markets were closed yesterday, but analysts expect the news to reduce prices further. The recent highs have threatened the world economy's fragile recovery.

Mr Ali Naimi, Saudi Arabia's oil minister, said yesterday: "There is not a shortage [of supply] in the international market, there is only a shortage from Venezuela, probably of two million barrels per day," he said.

Venezuela's strike and worries about a possible war in Iraq have driven oil prices to more than $30 per barrel, well above OPEC's ideal range of $22-$28.

Much of the increase to fill the hole left by Venezuela has already begun, OPEC sources said, but some extra production is still expected to hit the markets in the coming weeks.

However, incremental barrels from the Middle East would take at least 45 days to reach the US, the market most effected by the loss of Venezuelan exports.

Riyadh, in the past days, had tried to persuade OPEC members to increase the cartel's 23 million barrels a day quota by 1.5-2 million barrels.

But its officials ran into resistance from countries worried about the seasonal drop in demand in the first two quarters of each year and the subsequent dangers of significant depressed prices if Venezuela's production was restarted and a US military action against Iraq were delayed.

Many producers were also concerned about losing market share to Saudi Arabia, which is the OPEC member most able to increase its production.

Political sensitivities in the cartel mean the extra oil was divided pro-rata, but key to flows now will be how quickly, and how far, leading producer Saudi Arabia opens the taps.

Mr Naimi said Saudi could lift flows to 10 million barrels daily at just two weeks notice, some two million higher than independent estimates of output in December.

"We can get to 10.5 million right away but to maintain that level we need 90 days to formalise contracts for extra rigs with drilling companies," Mr Naimi added of the kingdom's full capacity.

Nevertheless, analysts called the quota theoretical and doubted OPEC would meet the new 24.5 million barrels a day ceiling in the near future. That figure includes Venezuela, which is thought to be producing more than two million barrels a day below its individual quota.

Mr Raad Alkadiri, analyst at PFC Energy, a Washington-based consulting firm said: "What this means is that the supply will be there, there won't be a shortfall because of Venezuela." By increasing OPEC countries' individual quotas the group was in effect making official its members' over-production.

Venezuela, meanwhile, raised objections over it possibly losing its quota share even temporarily in spite of the fact that it is unable at this point to meet it.

Mr Ali Rodriguez, head of Petroleos de Venezuela (Pdesa), Venezuela's state-owned oil company, said today that the country's oil output would return to pre-strike levels by the end of February. "We will give OPEC certainty that we will recovery operations ... by the end of February," Mr Rodriguez said.

But analysts doubted the validity of the statement saying that the strike showed little sign of coming to an end.

OPEC's 10 active members (Iraq's production is controlled by the UN because of sanctions against Baghdad) are estimated to be producing just over 23 million barrels a day.

An assault on Iraq, cutting another two million barrels a day could leave OPEC floundering if Venezuelan oil is not restored.

Mr Rafael Ramirez, Venezuelan oil minister, said his country's output now was 800,000 bpd and would reach 2.5 million bpd by mid-February. - (Financial Times Service)

Editorial Comment, page 13