OPEC's latest action came in apparent defiance of Washington, which had eagerly awaited the cartel's expected production increase of 500,000 barrels per day at the end of July to feed the world's growing appetite for oil.But instead, OPEC President Ali Rodriguez announced in Caracas that there would be no oil output rise this month because oil prices had fallen below the cartel's $28 a barrel price band.

The news sent US oil futures prices soaring by $1.11 a barrel to close at $31.94 a barrel, up nearly four per cent for the day.

The Clinton administration, which has used quiet diplomacy to influence key members of the Organisation of Petroleum Exporting Countries (OPEC), urged the cartel to reconsider.

"We've asked the OPEC nations to keep an open mind about increased oil production, and we continue to believe an increase is good for both producing and consuming nations," White House spokesman Elliot Diringer told Reuters.

The administration has been seeking more supplies from OPEC to lower crude oil, gasoline and heating oil prices that it fears could slow the US and world economy.

Government statistics released on Tuesday showed US consumer prices rose 0.6 per cent in June, largely due to higher prices for fuel, airfares and other transportation. The consumer price index is the nation's broadest gauge of inflation.

An economic turndown would also hurt OPEC members, the administration has argued, because oil consuming nations would reduce their petroleum imports. "We need a better balance between supply and demand in order to sustain economic growth," US Energy Secretary Bill Richardson told Reuters.

Richardson said the markets have indicated that crude oil and gasoline stocks are too low, and the administration wants to make sure there are adequate home heating oil inventories going into the winter.

"The administration will continue to do everything possible to ensure that American consumers have adequate supplies of oil and petroleum products to meet their energy needs," he said.

OPEC flip flop due to price band
Rodriguez had told OPEC members on Monday to be ready to ramp up daily production by half a million barrels at the end of the month if oil prices remained high.

But on Tuesday, he said the cartel's new mechanism to trigger an increase in crude oil production could occur only if the OPEC basket price stayed above $28 a barrel for 20 consecutive days.The price of OPEC's basket of crude fell to $27.46 a barrel on Monday, according to the OPEC secretariat in Vienna.

"The agreement is that if the price falls under $28, then the 20-day process will begin again...If the price remains under $28 there will be no increase," Rodriguez told reporters.

Saudi Arabia has already acted to pump some of the extra oil.Saudi, the world's biggest producer, said earlier this month it was prepared to act alone to produce 500,000 barrels per day if necessary to push crude oil prices back down to OPEC's target of about $25 a barrel.

Traders have said the Saudis began pumping more oil shortly after that announcement and have signed contracts to provide about 250,000 barrels a day in new crude to the United States and the Far East, but not Europe."Recent conflicting signals on possible production increases have created confusion in oil markets," Richardson said.

Sen. Frank Murkowski, who heads the Senate Energy Committee, said there was nothing the Clinton administration could do to convince OPEC to raise production because the cartel knows the United States needs its oil.

"We are dependent customers and they (OPEC) got something to sell," said the Alaska Republican. "They got us and they're enjoying the cash flow." The US imports about 56 per cent of its oil needs.Murkowski said the only solution to the problem is to increase domestic production by giving energy companies drilling access to more federal lands. President Bill Clinton has said he would veto any legislation to open pristine Alaska lands to drilling.

Earlier this year, OPEC agreed to increase its output amid rapidly dwindling inventories worldwide and fierce criticism from US lawmakers. In March, the cartel agreed to raise output by 1.7 million barrels per day, and in June increased output by another 708,000 barrels per day.

-- (Reuters)