Opec output is likely to rise further after the group, seeing oil prices in its comfort zone and expecting demand to recover later this year, shrugged off overproduction by many members at a recent meeting.

Opec stuck to output quotas agreed in December 2008 at their meeting on March 17 in Vienna, even though members are already exceeding them as oil prices rally.

Algeria's oil minister said the meeting did not discuss tighter adherence and the group's secretary-general Abdullah Al Badri said "we tried to push but not that much" on compliance, in contrast to officials' usual calls to tighten up.

Compliance has been falling since April last year as most members except Gulf producers Saudi Arabia, the UAE and Kuwait pump more barrels, allowing them the win-win of selling more crude without hurting prices.

"As long as prices are high, leaks will continue," said Edward Morse, head of global commodities research at Credit Suisse. "I expect compliance to continue to deteriorate."

"Opec rulers will be saying why are we shutting anything in when prices are high and we need the money?" he added.

The Gulf producers have tolerated leakage as they see demand rising and the extra supply has not deflected oil from the $70-to-$80 a barrel range seen as preferable by Saudi Arabia and other members of the group.

"Good demand, reliable supply, beautiful prices - we are very happy," Saudi Arabian Oil Minister Ali Al Naimi said while in Vienna for Opec's talks last week.

"Everything is relative - if there was no demand there would be no leakage," he said.

Despite Al Naimi's confidence about demand, extra supply is not without its risks as the oil supply and demand balance is already in a small surplus, some analysts say.

According to a poll, current Opec output is likely to see the oil market in a surplus of 150,000 barrels per day (bpd) this year, despite higher demand. The second quarter is typically the period of slowest demand.

"When you look at any of the balances, the call on Opec will not increase in 2010. If they maintain the same level of production, they will create a small build in stocks," said Credit Agricole analyst Christophe Barret.

"If there is no rebound in demand, Opec will have problems. I was surprised they did not mention compliance."

A further rise in Opec output will leave Saudi Arabia, and to a lesser extent other Gulf producers, firmly in the driving seat as others run short of unused capacity.

Last month, the 11 members with quotas pumped 26.8 million bpd of oil - nearly 2 million bpd more than their target and just 53 per cent of cuts announced in December 2008 when recession was biting global demand hard. – TradeArabia News Service