The Organization of the Petroleum Exporting Countries is raising official output quotas, but lack of spare capacity means lower prices are unlikely.

OPEC oil ministers decided to increase output by 500,000 barrels a day effective July 1. This will bring production up to 28 million barrels a day excluding about 1.8 million from Iraq.

But analysts are skeptical that the decision will do much to bring oil prices below $50 a barrel.

Traders too were unimpressed and oil prices rose after the OPEC decision was announced. The market continues to worry about tight supplies of diesel and heating oil.

Oil analyst, Johannes Benigni, of PVM Oil Associates in Vienna says OPEC has little spare capacity to increase output. "The question is whether this is going to be enough. I mean we know this is not going to be enough so actual capacity at the end of the year is going to be less than what it is now and now its not a lot," he said.

Mr. Benigni said any sudden supply shock would lead to problems. The oil ministers agreed that if prices stay at record levels output should go up by another 500,000 barrels in August.

OPEC supplies about 40 percent of world demand of 84 million barrels per day.