* Saudi says higher oil output target may be needed
* Iraq says OPEC producing a surplus
* OPEC pumping 1.8 mbpd above formal 30 million target
* OPEC economists say 30.7 mln bpd needed to balance market
* Policy decision on Thursday (updates throughout)
By Peg Mackey and Daniel Fineren
VIENNA, June 11 Leading oil producer Saudi Arabia put itself on a collision course with fellow OPEC member countries on Monday by calling for an increase in the cartel's output target despite a recent fall in crude prices.
"Our analysis suggests that we will need a higher ceiling than currently exists," Saudi Oil Minister Ali al-Naimi said in an interview with the Gulf Oil Review ahead of a meeting of the Organization of the Petroleum Exporting Countries on Thursday.
That was at odds with the assessment by Iraq's OPEC President, Abdul Kareem Luaibi, that there is a surplus in supplies from the 12-member group.
"It's very clear there is a tremendous surplus that has led to this severe decline in prices in a very short time span," Luaibi told reporters via a translator.
Brent crude has fallen about $28 a barrel since March to $100 a barrel, weighed down by slow economic growth and increased output from Saudi Arabia.
OPEC's biggest producer, Saudi has lifted output sharply to 10 million barrels a day, a 30-year high, to prevent inflated fuel prices blocking global growth.
"Our actions have helped the oil price drop from $128 in March to about $100 today which has acted as a type of stimulus to the European and world economy," said Naimi.
He said OPEC would need to study an assessment from economists, who met at the group's Vienna secretariat on Monday to calculate how much OPEC crude is required to balance world supply and demand in the second half of the year.
OPEC delegates said the economists settled on a figure of 30.7 million bpd, higher than the existing official target of 30 million bpd but well short of current output of 31.8 million.
That would imply that even with a higher formal target, actual supply would need to drop to prevent a substantial build in inventories on the 90 million bpd world market during the remainder of the year.
Saudi Arabia, a member of the Group of 20 leading world powers, has a reputation as a moderate on oil prices among OPEC producers.
"Given our large crude oil reserve situation, we certainly want to see a sustained market for crude oil over the long term," said Naimi. "This calls for moderation, but on the other hand, with the cost of oil production going up ... a reasonable price is required to ensure exploration can continue."
Others, including Iran and Iraq, both needing oil well above $100 to balance budgets, are keen to keep prices high to maximise revenues.
Struggling against Western sanctions, Iran's output has fallen to its lowest in 20 years, leaving Saudi Arabia and its Gulf Arab allies to pick up the slack.
Iran and Iraq, political allies, are expected to argue that Saudi Arabia should reduce supplies to support prices. They can expect support from fellow price hawks Venezuela and Algeria
After oil fell below $100 last week, Venezuelan President Hugo Chavez said he was worried about OPEC members violating the agreed production ceiling.
The group appears unlikely at Thursday's meeting to reintroduce individual quotas to help police its production.
"It's rather difficult at this conference to talk about individual quotas because there are outside conditions beyond the control of OPEC," said Luaibi. (editing by Richard Mably, William Hardy)