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OPEC Oil Production Surges As Price Climbs

OPEC oil production is at its highest level in almost a year, an industry survey showed Tuesday, showing the cartel's rebound from late 2008 as members capitalize on the rise in crude prices this year.

The Organization of Petroleum Exporting Countries produced on average 26.65 million barrels of oil a day in November, according to a Dow Jones Newswires survey of analysts and traders. The figures don't include Iraq, which isn't bound by OPEC's output quotas as the other 11 nations are.

It is the highest output level since December 2008, when the 12-nation cartel was scrambling to slash output as the global recession was deepening and crude prices were tumbling.

OPEC, which pumps a little more than 40% of the crude consumed globally every day, is producing about 1.8 million barrels a day more than its formal production target, according to the survey.

The increased output reflects a rising conviction within OPEC that a China-led economic recovery will result in higher oil consumption. It also reflects the fact that some cartel members with financial problems, such as Venezuela, are ignoring their quotas and pumping more oil.

The increased production is a substantial reversal of big output cuts the cartel implemented this year.

Those reductions laid the groundwork for higher crude prices, which have risen 77% to almost $79 a barrel despite a persistent backlog of supply.

Prices also have increased on expectations of economic recovery, as well as factors such as investors buying into commodities to offset a weaker U.S. dollar.

A number of OPEC states, including Ecuador, Iran, Nigeria and Venezuela, face tough economic conditions. Venezuela, which analysts say has routinely pumped well above its OPEC quota this year, experienced a 4.5% slump in third-quarter economic output, mirroring declines earlier in the year.

OPEC's rising output essentially means it has already delivered some or all of its next formal production increase, whenever that happens.

For the time being, various OPEC officials and some ministers say the cartel is likely keep its formal output target unchanged when it meets for the final time this year in Angola on Dec. 22.

Keeping the production cuts in place gives OPEC the flexibility to rein in output should the persistent overhang in oil inventory, a result of weak oil demand this year, begin to put downward pressure again on the price of crude.

Source: Wall Street Journal