London’s Financial Times today reports the cartel as saying it will have to supply at least 30.1 million barrels of oil per day (bopd) in the fourth quarter of 2005 to “balance” the market. This would be an increase of 630,000 bopd from its January estimate in January and 1.1 million bopd up its December forecast.

The Paris-based International Energy Agency forecasts OPEC’s capacity will be 31.5m bopd by the middle of this year.

OPEC pumped at capacity last autumn as it tried to catch up with a big increase in demand, but the sharp production increase reduced spare capacity to a 30-year low, helping push oil prices to a nominal record of over US$55 per barrel last October.

Analysts expect increasing reliance on OPEC will make the market more vulnerable to political shocks in the Middle East. Oil prices briefly surged more than US$1 on Wednesday amid conflicting reports of an explosion in Iran's Bushehr province, where Tehran is building a nuclear reactor.

“The cushion to confront an unexpected shock will be very limited,” said Antonio Merino, chief economist of Repsol YPF.

In spite of raising its forecast for demand, the cartel is leaning towards a cut in production at its March meeting, to avoid an increase in oil stocks during the second quarter. IT increased its forecast for global demand by 80,000 bopd for 2005 and forecast a further 13,000 bopd fall in non-OPEC supply, largely due to a slowdown in Russia oil production.