OPEC output up as Saudi opens taps

The OPEC oil cartel lifted production in May as Saudi Arabia and the United Arab Emirates began to boost crude exports in a bid to rein in runaway prices, a Reuters survey released on Tuesday found.

The 10 members of OPEC with quotas pumped 26.28 million barrels per day, raising production by 530,000 barrels per day from April, according to the survey of consultants, shippers, industry and OPEC sources.

Total OPEC output for the month, including Iraq which has no quota, made a smaller 320,000 barrels per day rise to 28.38 million barrels per day, as sabotage attacks cut into Iraqi exports, the survey showed.

The May increase came as Gulf OPEC producers Saudi Arabia and the United Arab Emirates began to ramp up production to curb a price rally that sent U.S. crude to 21-year highs above $40 a barrel.

Saudi output rose by 320,000 barrels per day in May to 8.65 million barrels per day, more than reversing cuts that the kingdom enacted in April when it was still concerned prices could fall as demand declined after the northern winter.

Saudi and the UAE raised output ahead of last week's deal by the OPEC-10 to lift a formal production target by 2 million barrels per day from July 1 to 25.5 million barrels per day, and by a further 500,000 barrels per day from August 1.

Saudi Arabia has already said it will produce 9.1 million barrels per day in June -- a further 450,000 barrels per day increase from May's level -- irrespective of its quota. Its formal limit from July 1 will be just 8.288 million barrels per day.

The UAE has said it will raise production by a total 400,000 barrels per day to help cool prices. The UAE already lifted output by 150,000 in May barrels per day as offshore facilities came back onstream after field maintenance.

Supply from OPEC's second and third biggest producers Iran and Venezuela also rose last month as rising Chinese demand, and low U.S. fuel inventories encouraged members to pump flat out.

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The strong demand has left little spare capacity in OPEC, feeding fears of a supply crunch in the event of an attack on Middle East oil facilities or political upheaval in Venezuela or Nigeria.

"Total OPEC-10 production capacity is close to 29 million barrels per day, leaving 3 million barrels per day of spare production capacity, of which two-thirds resides in Saudi Arabia," said PFC Energy in a report.

"This lack of spare production capacity has left the world's oil markets walking a tightrope," it added.

Iraqi crude exports were sharply reduced in May after a sabotage attack earlier in the month reduced pumping to the main southern oil port of Basra.

Crude exports in May averaged 1.59 million barrels per day versus the previous month's already low total of 1.8 million barrels per day, shipping data compiled by Reuters showed.

Exports through the northern route of Ceyhan in Turkey also fell as pumping along the Kirkuk pipeline had been sporadic in the past month.