July 21 (Bloomberg) -- Kuwait, the Middle East's third- largest oil producer, said OPEC may raise production by as much as 500,000 barrels a day when the group meets in September to help ease prices that have climbed to a record this year.

``I have to know exactly the spare capacity of each member but I think not less than another'' 500,000 barrels a day of output could be added, Kuwait's Minister of Energy Sheikh Ahmad Fahd al-Ahmad al-Sabah said in an interview. He didn't say whether the rise would be in actual production or output quotas.

OPEC has raised crude oil production twice this year. Further increases in oil prices, which touched a record $42.45 a barrel in New York on June 2, may prompt OPEC to raise output for a third time, al-Sabah said. Crude oil futures yesterday fell $1, or 2.4 percent, to $40.44 a barrel on the New York Mercantile Exchange. Prices are 27 percent higher than a year ago.

OPEC pledged this month to proceed with a planned 500,000 barrel-a-day increase in targets on Aug. 1 and canceled a meeting scheduled for July 21. Production from all 11 members of the group rose 2.6 percent in June to 29.29 million barrels a day, the highest in more than three years, according to Bloomberg estimates, as some countries exceed existing quotas.

`Fair Price'

OPEC may also discuss raising the group's $22-to-$28 a barrel price band when it meets in Vienna on September 15, al- Sabah said.

The group uses the average price of seven types of crude oil to calculate its so-called basket price. The basket was set up by the group to act as a guide for production to keep prices between $22 and $28 a barrel. The basket price has been higher than $28 a barrel since Dec. 1, 2003, or more than six-months. It stood at $36.89 on July 19, the latest figure available from OPEC.

``As a personal opinion, I think between $28 and $35 would be a fair price,'' al-Sabah said. ``If we raise our band to make $32 the middle of our band, I think this would be acceptable to everybody.''

Oil prices are likely to fall next year to between $25 and $32 a barrel, al-Sabah said. New York oil prices, which have averaged $37.13 a barrel this year, are inflated by as much as $8 because of increased perceptions of risk to oil supply from the Persian Gulf, Venezuela and Nigeria, he said.

U.S. Federal Reserve Chairman Alan yesterday said while there was no ``evidence that OPEC is constraining production,'' higher global demand and concerns of supply disruptions had boosted prices.

Supply Assured

OPEC ``essentially have opened up the taps as best one can judge,'' Greenspan said while delivering the central bank's biannual report in Washington. ``The problem is that supply is increasing but demand overall is increasing more. That's what the difficulty is.''

Oil demand will rise by 2.2 percent next year, almost double the average annual rate in the 1990s, because of rising consumption in China and the U.S., according to the International Energy Agency, the Paris-based adviser to 26 industrialized countries.

``I don't think there's a shortage in the market. Maybe the demand will increase next year'' by as much as 1.8 million barrels a day, al-Sabah said. ``We can assure the market with supply if it's a normal situation, but if something unusual happens you can't be sure.''

Crude oil prices last month rose to the highest in two decades of futures trading in New York, touching $42.45 a barrel, after suspected al-Qaeda militants attacked a compound that houses foreign oil workers in Khobar, Saudi Arabia, killing 22. On May 1, five ABB Ltd. employees were killed at a petrochemical plant in Yanbu, Saudi Arabia.

To contact the reporter on this story: Sri Jegarajah in Singapore at sjegarajah@bloomberg.net.

Last Updated: July 20, 2004 23:09 EDT