OPEC may cut oil surplus. Higher prices to follow?

 OPEC's president signalled on Monday it could act to reduce a glut of oil that has knocked the price down towards double digits, but said it was unlikely to set individual country production quotas at a meeting this week.

Abdul Kareem Luaibi, who also serves as oil minister of Iraq, said maintaining the price at $100-$120 a barrel was "reasonable and acceptable", but repeatedly declined to specify what action if any OPEC might take when it meets on Thursday.

Supply from OPEC is running nearly 2 million barrels per day (bpd) above a self-imposed production ceiling of 30 million barrels per day set when ministers last met in December. At the time, individual targets for countries were not allocated.

"It's very clear there is a tremendous surplus that has led to this severe decline in prices in a very short time span," Luaibi told reporters. "This will not serve anyone."

Oil is now trading at about $100 a barrel after falling back from a four-year high of $128 in March. Worries about the slow pace of global economic recovery have helped depress prices, which had been boosted earlier this year by tension between the West and Iran over its nuclear programme.

The OPEC president said that ministers of the 12-nation group would decide what action to take after a review of market conditions, but declined to give further details.

"We have our own view about the surplus, but it's not diplomatic to talk about if for the time being," he said.

He did make clear that new individual quotas for countries were unlikely to be agreed, as long as the prospect looms of sanctions on Iran.

"It's rather difficult at this conference to talk about individual quotas because there are outside conditions beyond the control of OPEC," he said.

Iran, which has seen its own production sink to the lowest level in two decades as a result of EU and U.S. sanctions, blames Gulf Arab countries for over-producing and wants cuts to support higher prices.

Luaibi said his own country, Iraq, would export 2.9 million bpd next year - up from 2.4 million bpd now. That implies total Iraqi output of 3.4 million bpd, which would allow it to overtake Iran as OPEC's second biggest producer. Iraq has ambitious plans to expand production held back by decades of war and sanctions.

Iran is especially frustrated by the lofty production rate of Saudi Arabia, which has exceeded 10 million bpd to reach a 30-year high.

The kingdom's aim was to help drive the price down to $100 - a level it feels is ideal - and help cushion consumers from a loss of supply from sanctions-hit Iran.

But there are signs that Saudi Arabia could be turning down the taps. It pumped 9.8 million bpd of crude oil in May, an industry source said on Saturday.

Traditional allies of Iran - Venezuela and Algeria - have also criticized OPEC overproduction, with Algiers even suggesting the possibility of a supply cut.

After oil fell below $100 last week, Venezuelan President Hugo Chavez said he was worried about OPEC members violating the agreed production ceiling. (Reporting by Peg Mackey; Editing by Jason Neely and Peter Graff)