OPEC's spare production capacity shrank to 600,000 barrels a day in July as the cartel raised output in a bid to counter high oil prices, the International Energy Agency (IEA) said yesterday. The report was issued as oil prices fell slightly yesterday.

In its monthly oil market report, the IEA estimated total sustainable spare capacity in the 11-member group at 1.2 million barrels per day (bpd).

But it said less than half that volume was effectively available, leaving a buffer of under 1 per cent on the 82-million-bpd world market.

That compares to about eight per cent in 2002 when spare capacity in OPEC was 6-7 million bpd, said the IEA, adviser on energy to 26 industrialised nations.

"The thin margin of spare capacity held by OPEC producers has contributed to recent price strength," said the report.

"All producers barring Saudi Arabia and UAE were operating within 100,000 bpd of sustainable capacity in July."

Worries about the lack of spare oil among OPEC producers this week helped drive oil prices above $45 a barrel for US crude for the first time.

Big non-OPEC exporters such as Russia and Mexico habitually pump at full throttle and do not keep spare capacity.

The IEA said another 1.5-2.0 million bpd of non-sustainable surge capacity may be available in OPEC, mainly in Saudi Arabia which says it has the capability to pump at the rate of 10.5 million bpd, more than one million bpd above recent output. Saudi Arabia later confirmed that it had raised output sharply over the past three months in a bid to prevent high prices damaging world economic growth.

Saudi oil minister Mr Ali al-Naimi said Riyadh had averaged 9.3 million bpd of crude during that period in a bid to cool world prices and vowed to raise supplies to meet any extra demand.

He said Riyadh could immediately tap spare production capacity if needed.

While there was little new in the Saudi statement, traders took note of Riyadh's concerns over the impact of high prices on economic growth and pushed US crude futures down from Tuesday's $45.04 a barrel record.

US light crude closed 28 cents higher at $44.80 a barrel, having touched a record $45.04 on Tuesday. Prices are up 19 per cent, or $7 a barrel, since the end of June. London Brent rose 29 cents to $41.57 a barrel.

The IEA expects OPEC to add 370,000 bpd of sustainable production by the end of this year and another 680,000 bpd by the end of 2005. Kuwait will provide an extra 150,000 bpd this year with Nigeria, Algeria and Libya also contributing.