AMSTERDAM, 22 May 2004 — Leading OPEC producer Saudi Arabia yesterday proposed a bigger-than-expected output increase.

Petroleum and Mineral Resources Minister Ali Al-Naimi said he would ask OPEC to lift production quotas by more than two million barrels per day, 8.5 percent, from existing limits of 23.5 million barrels daily.

The Kingdom wants prices down from $40 a barrel to prevent long-term damage to world fuel demand and to soothe an outcry from the world’s big petroleum importers, including the United States.

Naimi released a statement in Amsterdam saying the Kingdom was already committed to pumping nine million bpd in June, up sharply from independent estimates of 8.6 million this month and 8.2 million in April.

Oil prices fell. US crude at the close traded down 93 cents at $39.87, below the psychological $40 threshold for the first time in 12 days.

The Saudi call came on the eve of a conference between oil producers and consumer nations who want the Organization of the Petroleum Exporting Countries to open the taps on its spare production capacity.

OPEC holds informal talks in Amsterdam today to consider the Saudi proposal but a final decision will not come until a full meeting in Beirut on June 3.

OPEC’s most influential member, Saudi Arabia holds the only significant volumes of spare capacity in the 11-member group.

Many in OPEC feel there is little they can do to contain a market driven by factors outside their control.

“I don’t think that control is in OPEC’s hands,” UAE Oil Minister Obaid ibn Saif Al-Nasseri told Reuters on his arrival in Amsterdam. “There are many factors behind these prices.”

US refinery bottlenecks, Middle East security worries and heavy speculation on crude futures by investment hedge funds have all helped drive up oil prices.

And latest estimates are that OPEC is already pumping what it may agree to deliver on paper in any new production agreement.

Tanker-tracking consultancy Petrologistics released a report yesterday estimating supplies at 26.38 million bpd in May, up 640,000 bpd on the month, or 2.88 million above existing official OPEC limits.

Beyond OPEC’s next move on output, say traders, oil price direction is largely in the hands of the big investment funds, mostly US based, who have taken oil markets by storm this year.

“The price can go higher,” Ed Buckley, portfolio manager at Vizor Investment Management, told Reuters this week. “In the next three to six months $50 a barrel is not out of the question.”

Consumer nations have made clear they have no intention of tapping emergency reserves to calm prices.