OPEC producers said yesterday they were pleased to see oil drop below $40 a barrel and predicted prices could eased further on rising export flows.

The Organisation of Petroleum Exporting Countries (OPEC) agreed on Thursday a two-stage increase of 2.5 million barrels a day(bpd) in July and August, raising formal supply quotas by 11 per cent. «We hope to reach a reasonable and acceptable price and believe that $28 is reasonable for everybody,» said Qatar Oil Minister Abdullah al-Attiyah. He was referring to an OPEC index price now valued just under $36 a barrel. «This is the first time OPEC wants to see the price in a donwtrend,» said Iraq?s OPEC governor Shamkhi Faraj.

US oil, worth a $3 premium over OPEC crude, eased 53 cents to $38.75 a barrel after an 80 cent drop on Thursday.

A two-stage increase in quotas reflected concerns among some OPEC members about triggering a price crash and many in the cartel appear keen to keep prices above $30 a barrel.

«We hope with this decision to be close to $35 for the OPEC basket,» said Iranian Oil Minister Bijan Zanganeh. «When you?re trying to find the right balance you have to take it in steps. We have to watch it in case like this,» said Nigeria?s head of OPEC delegation Edmund Daukoru.

Formal output limits go up by two million bpd from July 1, to 25.5 million, increasing by a further 500,000 bpd from August. OPEC meets again on July 21. It has come under heavy pressure to force down prices from industrialised powers worried about the impact of inflated energy costs on economic growth.

For its part the 11-member group does not want crude at heights that put fuel demand at risk. Saudi Arabia and the United Arab Emirates have said they are already delivering just over one million barrels a day of real extra oil in June. The only two nations with much spare capacity, they effectively have been granted license to pump at will this month.

Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah estimated real supplies would rise this month by about 700,000-900,000 bpd, from 25.5 million bpd.

Jonathan Leff