Monday, October 20, 2008

Oil rises on OPEC rhetoric

The price of oil rose Monday as investors weighed a potential OPEC supply cut against longer-term concerns about weakening demand.

Light, sweet crude for November delivery settled up $2.40 to $74.25 a barrel on the New York Mercantile Exchange. Oil has fallen sharply from recent highs, losing roughly half its value since it topped $147 in July.

Retail gasoline prices, meanwhile, continued to come down. The national average price for a gallon of regular gasoline fell more than 3 cents overnight to $2.923, according to a survey by the American Automobile Association.

Gas prices have retreated about 30%, or $1.19, from the all-time high of $4.114 that AAA reported in July.

While falling gas prices are a boon for cash-strapped consumers, they come largely as a result of crude's staggering decline, which has prompted some hand-wringing on the part of producers.

Members of the Organization of Petroleum Exporting Countries will meet Friday to discuss a possible production cut aimed at preventing the price of crude from falling further.

The cartel, which controls two-thirds of the world's oil supplies, is reportedly considering a cut of up to 1.5 million barrels per day.

The oil market shrugged off OPEC's decision last month to cut output by about 520,000 barrels a day. At that time, concerns that a global economic recession would severely undermine energy demand were outweighing supply concerns.

But some analysts say the price of oil has been pushed too low and that the market is "oversold."

Recent signs of a tentative thaw in the credit markets and a few days of relative stability in the world's stock markets have led some investors to believe that economic conditions could improve and energy demand may rebound.

"This week's trade in crude oil is expected to rebound slightly from recent oversold levels," wrote Tom Pawlicki, oil analyst at MF Global in Chicago, in a recent research note.

"Signs of strength in the stock market" and "recent rhetoric from OPEC" could drive the price of oil to $90 over the next week or two, Pawlicki said.

Still, Pawlicki counts "weakening demand for oil" among the long-term factors that will pressure the oil market.

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