* OPEC meeting fails to reach agreement on output boost
* US crude stocks slump nationwide, and in Cushing
* Brent/WTI spread narrows after record over $18
(Updates throughout, recasts, adds fresh quotes)
By Jonathan Leff and Matthew Robinson
NEW YORK, June 8 (Reuters) - Oil prices jumped on Wednesday after OPEC failed to reach a deal to increase output, raising fears of supply shortages later this year that could fuel a further price rally, imperiling the economic recovery.
The Organization of the Petroleum Exporting Countries' talks broke down after Saudi Arabia failed to convince other members to lift production, as many had expected in what the kingdom's oil minister, Ali al-Naimi described as "one of the worst meetings...ever".
Still, Naimi insisted OPEC's top exporter was ready to supply the market with whatever crude it needs. Consumer nations said they could tap emergency reserves to help ease the strain of high oil prices on their economies.
"Oil prices rising over $120 per barrel will have a severe impact on the world economy, and we would continue to see sluggish numbers coming out of the US and other countries," said Thorbjorn Bak Jensen, oil market analyst at A/S Global Risk Management Ltd.
London benchmark Brent crude
U.S. light crude
EMERGENCE RESERVES
Crude fell from earlier highs after a White House spokesman said current oil supply levels are not meeting world demand and that President Barack Obama was keeping open the option of using U.S. strategic oil reserves but that no decision had been made. [ID:nN08214799]
The International Energy Agency, energy watchdog of the West, later said it would coordinate a release of emergency reserves to fill any supply gaps if Saudi Arabia could not.
"We are ready to move," IEA Executive Director Nobuo Tanaka said at the Center for Strategic and International Studies think tank.
However, John Hess, Chairman and CEO of Hess International, said supplies were healthy despite the OPEC decision.
"The world is getting the oil it needs," he said at a forum of the Center for Strategic and International Studies in Washington, adding he was confident Saudi Arabia would step in if there was a market shortfall.
Oil prices have rallied since the start of the year on the loss of Libyan oil production because of a civil war, and were approaching 2008 peaks before falling by more than 10 percent in early May. They have traded in a narrow range since then. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ OPEC production vs. target http://r.reuters.com/zyg89r Saudi production http://r.reuters.com/xad99r Inflation-adjusted oil price http://r.reuters.com/zad99r Oil consumption by region http://r.reuters.com/gyb89r Saudi output vs rest of OPEC: http://r.reuters.com/ryb89r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
OPEC BREAKDOWN
After early indications that OPEC would agree a compromise production increase at its most uncertain meeting in years, the producer group split into irreconcilable factions.
Saudi Arabia, together with its core Gulf allies the United Arab Emirates, Kuwait and Qatar had proposed an increment of 1.5 million barrels per day over OPEC's current production including Iraq, for overall output of 30.3 million bpd.
He said Libya, Algeria, Angola, Ecuador, Venezuela, Iraq and Iran -- nations that don't have available spare capacity to pump more barrels quickly -- were opposed.
The failure to reach accord doesn't necessarily change the outcome for oil markets. A senior Gulf industry official familiar with Saudi oil policy told Reuters earlier this week that Riyadh plans to pump another 500,000 bpd to reach at least 9.5 million bpd, its highest in three years.
After Wednesday's meeting, a senior delegate told Reuters that Saudi Arabia would step up output beyond May's 9.16 million bpd this month. A Reuters poll had estimated Saudi output at a lower 8.95 million bpd in May.
It does suggest a new fractiousness in a group that has remained relatively cohesive over the past decade, adding to existing strains around the conflict in Libya.
"The split in OPEC doesn't really affect production plans. In the short-run, the Saudis have already said they're going to be increasing output," said Adam Sieminski, head of energy research at Deutsche Bank. "But what it does do is show the mess the decision making process is in."
STOCKS OVERSHADOWED
The shock from Vienna overshadowed U.S. government stock data, which showed a 4.8 million barrel fall in crude inventories last week, the biggest weekly drop in crude inventories in six months as imports fell. Analysts had forecast a tiny 300,000-barrel decline in a Reuters poll, although the big draw jived with industry data released on Tuesday evening. [EIA/S]
A sizable drop in stocks at the Cushing, Oklahoma, delivery point for the U.S. oil futures contract following a week-long pipeline outage helped support the U.S. crude, narrowing Brent's premium to WTI to around $17 after hitting a record more than $18 earlier.
However, data showing that inventories of gasoline rose 2.21 million barrels to 214.49 million barrels, above the 1-million-barrel build analysts had projected, was the focus as the United States summer driving season begins to pick up.
"The increase in gasoline inventories diminishes the bullish tone somewhat. We are continuing to see rapid replenishment of gasoline storage levels." said John Kilduff, Partner at Again Capital LLC in New York.