AP reported that there is a gentlemen's agreement between OPEC members to accommodate increasing output from Libya.

Libya's oil minister Mr Abdul Rahman bin Yazzah said that while there is no formal deal among members of the 12 nation Organization of the Petroleum Exporting Countries to cut output, the producer group is willing to take the step as Libya's production ramps up to pre civil war levels of 1.6 million barrels per day.

He added that "If the situation calls for it, they will meet. But there is a gentlemen’s agreement to accommodate Libya's production."

OPEC agreed on December 14th 2011 to raise its production ceiling to about 30 million barrels per day. The decision marked an increase from its earlier output target and was the first time it changed the ceiling in three years.

The producer bloc has grappled for years with noncompliance by member with their allotted quotas. The situation became further muddled over the past year as Libya's civil war ground production from that nation to a near standstill. To offset the drop, other OPEC members, most notably Saudi Arabia, stepped with additional barrels.

Mr Nouri Berruien chairman of the National Oil said that Libya is currently producing slightly more than one million barrels per day. The country expects to return to full production by mid 2012.

Aside from accommodating increased oil from Libya and Iraq, OPEC must also deal with an economic crunch in Europe where sovereign debt worries are squeezing growth forecasts and, in turn, dampening demand for oil. If OPEC overproduced, or fails to curb its members’ production to adjust for Libya's return to the market it could see prices fall below the USD 100 per barrel level favored by price hawks like Iran and Venezuela. Others like bloc kingpin Saudi Arabia favor prices between USD 80 to USD 85 per barrel.

(Sourced from Associated Press)