Oil eases after OPEC hike
 |  OPEC is in charge of half of the world's oil supply. |
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| FACT BOX | GLOBAL OIL BALANCE
(millions of barrels per day)
Demand, May 2004: 80.6
Supply, May 2004: 81.5
Growth over 2003: 2.0
Source: International Energy Agency, May 2004
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LONDON, England -- Oil prices have slipped below $40 a barrels after OPEC decided Thursday to raise its output limits to stem the surge in prices that followed terror attacks in Saudi Arabia, the world biggest oil producer.
The 11-nation cartel, meeting in Beirut, agreed to a two-stage plan to raise oil production by 2.5 million barrels a day.
U.S. light crude for July delivery closed down 79 cents to $38.49 a barrel in afternoon trading Friday in New York.
Brent crude for July delivery fell 45 cents to $35.95 in London.
OPEC said Thursday that it would hike output by two million barrels a day on July 1.
The cartel also agreed to add another 500,000 barrels on August 1.
The 8-percent rise would bring OPEC's production ceiling to about 26 million barrels a day and appears to be a compromise between Saudi Arabia and countries like Iran and Venezuela who feared a price collapse.
Saudi Arabia had pressed for an immediate increase of 2.5 million barrels a day. Riyadh wants to prevent high oil prices derailing world economic growth and stunting world fuel demand.
The cartel is attempting to keep oil prices between its target range of $22 and $28 a barrel and is due to meet again on July 21 to review its policy.
"It's a good agreement, we will be able to test the impact of the policy on the oil market before we meet again in July," Qatari Oil Minister Abdullah al-Attiyah told Reuters.
Traders have already expressed doubt that a production increase will ease rising oil prices in the short term because global demand is so strong and there is no current oil shortage.
The upturn in prices had been fueled by concern over the security of oil supplies in Saudi Arabia given an attack last weekend at an oil compound, which left 22 people dead.
Prices have been on a roller-coaster ride this week, touching a record high of $42.45 in New York on Tuesday.
Terror 'premium'
Despite Saudi Arabia vowing to keep oil supplies flowing and declaring its production had been unaffected, analysts expect the "terrorist premium" on oil prices to rise in coming weeks.
Although oil facilities were not affected in the Khobar attack, analysts say the incident will heighten concern about supply security in the Middle East.
Oil prices are up about 25 percent since the end of 2003. But while absolute prices are at their highest on record, in real terms oil is still cheaper now than it was in the 1970s.
Oil reached the equivalent of $80 a barrel in 1979 after the second "oil shock."
The price of petrol, or gas, around the world has risen and many airlines are introducing or planning to introduce fuel levies on passengers.
Reuters contributed to this report.
