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Oil prices ease as Opec opens tap

Oil prices eased further below $40 a barrel yesterday as an Opec deal to pump more crude outweighed underlying fears of political instability in top producer Saudi Arabia.

US light crude CLc1 fell 57 cents to $38.71 a barrel, following an 80-cent drop on Thursday when Opec agreed a two-stage output increase of 2.5 million barrels a day in July and August.

Brent crude LCOc1 in London was down 50 cents at $35.90 a barrel.

The Organisation of the Petroleum Exporting Countries raised formal output limits by two million bpd from July 1 and another 500,000bpd from August. It set another meeting for July 21.

"Opec's decision ... will provide some relief but it is unlikely to bring prices substantially lower," said Standard Chartered Bank.

Opec is already estimated to be producing in line with its new official limits and most members cannot pump more.

But actual output in June is going up because the few with spare capacity effectively have been granted license to pump at will for the month.

Saudi Arabia and the UAE have said they will deliver about one million barrels a day of real extra oil in June.

"All bar Saudi Arabia will now be producing at their maximum sustainable capacity," said Paul Horsnell of Barclays Capital in London. "We suspect that it is not enough to push price down too far, but it should at least help to slow the inexorable march upwards."

Oil dealers were served a sharp reminder of the risks to supply security in the Middle East that pushed crude to a 21-year high earlier this week.

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