Oil drops below $99 ahead of OPEC meeting(update)


SINGAPORE: Oil prices fell below $99 a barrel Tuesday in Asia amid expectations that OPEC will raise its production quota this week.

Benchmark crude for July delivery was down 51 cents to $98.50 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract lost $1.21 to settle at $99.01 on Monday.

Brent crude was down 46 cents to $114.02 on the ICE futures exchange in London.

Analysts are looking for clues on what the Organization of Petroleum Exporting Countries will do about oil production when the cartel meets Wednesday in Vienna.

OPEC ministers could decide to try to push oil prices lower by increasing production. OPEC officials have said that they believe oil prices are too high and threaten global economic recovery.

Capital Economics said traders are speculating that OPEC will increase its output ceiling by as much as 1.5 million barrels per day. That would be the first increase since September 2007, but oil prices are likely to fall regardless of OPEC's decision, it said.

The cartel's current production is already close to 1.5 million barrels above the daily production ceiling so any increase of that magnitude would be largely symbolic, Capital Economics said.

"The bigger picture is that oil prices are likely to decline anyway as demand continues to disappoint and the Middle East risk premium fades," it said.

Also on the radar is the U.S. Energy Department's release Tuesday of its monthly short-term energy outlook and weekly petroleum inventories report on Wednesday. The recent trend has been for rising supplies and falling demand.

In other Nymex trading in July contracts, heating oil fell 1.2 cents to $3 per gallon and gasoline dropped 1.4 cents to $2.94 a gallon. Natural gas was off 1.4 cents at $4.81 per 1,000 cubic feet. - AP

Earlier report

Oil drops below US$100 ahead of OPEC meeting

NEW YORK: Oil fell below $100 a barrel Monday as investors and economists await a key OPEC meeting this week and the government's outlook on U.S. supply and demand.

Benchmark West Texas Intermediate for July delivery lost $1.21 to settle at $99.01 per barrel on the New York Mercantile Exchange. Crude has been within a few dollars of the $100 mark for about a month.

A stronger dollar pushed oil lower Monday. Oil is priced in dollars and becomes more expensive for buyers with foreign currency as the dollar gets stronger.

TransCanada Corp. also said its Keystone Pipeline was back online after a minor oil spill at a pump station in Kansas. The pipeline delivers a half million barrels of oil per day to the U.S. from Alberta, feeding supplies to the delivery point for benchmark oil in Cushing, Okla. The 1,300-mile (2,080-kilometer) pipeline was taken offline twice in the last month as TransCanada dealt with leaks.

Analysts are looking for clues on what OPEC will do about oil production when the cartel meets Wednesday in Vienna. OPEC ministers could decide to try to push oil prices lower by increasing production. OPEC officials have said that they believe oil prices are too high and threaten global economic recovery.

"You have a lot of money sitting on the sidelines right now ahead of that meeting," analyst Stephen Schork said.

It's unclear how prices would react to more OPEC production. By pumping more oil, OPEC could make up for the loss of exports from Libya that were cut off by unrest that began there in February. That may push prices lower. But experts also point out that boosting production now could make it harder for the cartel to provide more crude later as global demand increases. That could force prices higher in the long run.

"It all depends on if you're taking a short-term or long-term view of things," independent oil analyst Jim Ritterbusch said.

Major oil investors like Goldman Sachs predict that oil prices will rise in the next 18 months as OPEC closes in on its maximum production capacity. The investment bank, which is considered a major player in oil markets, said in a research note Monday that global oil demand "continues to increase at a fast pace" with consumption rising by about 500,000 barrels per day in April.

Goldman analyst Michele della Vigna noted, however, that global demand growth appeared to slowing, particularly in Japan, where it fell by 357,000 barrels per day in April due to the earthquake and tsunami that hit the country in March. A number of manufacturing plants closed because of the damage.

Della Vigna also said there were signs of slumping demand closer to home. "May is the first month we have seen a possible reaction to demand from oil prices in the U.S."

The Energy Department will release its monthly short-term energy outlook on Tuesday and weekly petroleum inventories report on Wednesday. The recent trend has been for rising supplies and falling demand.

In other Nymex trading in July contracts, heating oil lost 3.93 cents to settle at $3.0174 per gallon and gasoline futures gave up 4.32 cents to settle at $2.9499 per gallon. Natural gas added 12 cents to settle at $4.827 per 1,000 cubic feet.

In London, Brent crude lost $1.36 to settle at $114.48 per barrel on the ICE Futures exchange. - AP

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