Oil Inches Lower

Updated from 2:33 p.m. EST

Crude oil futures inched down Tuesday as traders focused on the prospect of another OPEC production cut over brimming fuel supplies and the return of warm weather.

The Organization of the Petroleum Exporting Countries meets in Nigeria next week to consider deeper output cuts. The cartel's production cut of 1.2 million barrels a day went into effect last month but has not been as effective at propping up oil prices as members would have liked.

Until last week, oil prices have traded between $57 and $62 for the past two months. It took increasingly bullish comments from OPEC members to boost oil prices up to $63. Over the past week, several OPEC ministers have said they believe the group needs to cut exports by at least 500,000 barrels per day to shore up sagging prices.

The cartel's reduction has not stuck in part because of high domestic crude stockpiles, which are about 6% above last year. Mild temperatures and little hurricane activity in the Gulf of Mexico have increased oil stockpiles this year. Crude is refined into fuels such as heating oil, which has not been used as much this year because of little heating demand.

Some of that surplus in crude stockpiles may have dipped last week as refiners ramped up production and wound down seasonal maintenance as the winter heating season is beginning. Analysts polled by Dow Jones expect refining capacity to hit 88.9% last week, up from 88.1% the previous week in the U.S. Energy Department's weekly update due out on Wednesday.

Supplies of distillates, which include heating oil and diesel, likely dropped by 860,000 barrels as refiners ramped up production.

However, stockpiles of crude were expected to climb by 560,000 barrels last week, while gasoline inventories likely rose by 140,000 barrels.

After trading as high as $63.25 intraday, light, sweet crude shed 1 cent to close at $62.43 a barrel on Nymex. Wholesale unleaded gasoline fell 3 cents to $1.63 a gallon and heating oil lost 1 cent to $1.79 a gallon.

Natural gas continued its fall from yesterday, recently declining 12 cents to settle at $7.68 per million British thermal units on forecasts of warm weather. The National Weather Service, in its 10-day outlook, expects temperatures to rise next week in the Northeast and Midwest and persist through the middle of December. Natural gas is used by some utilities to generate electricity.

In stock market action, shares of refiners, oil and natural gas drillers gained ground on the Amex Oil and Natural Gas indices. Anadarko Petroleum(APC Quote - Cramer on APC - Stock Picks), Repsol(REP Quote - Cramer on REP - Stock Picks) and Total(TOT Quote - Cramer on TOT - Stock Picks) lead advances on the Amex Oil Index, up at least 1.7% each.

Exxon Mobil(XOM Quote - Cramer on XOM - Stock Picks) hit a high of $78.52 earlier this morning after Banc of America Securities suggested to clients they pull stock out of Chevron and switch to Exxon, Total and ConocoPhillips. Exxon also said today it entered into an agreement to explore the deep waters off of the Philippines.

In the past 52 weeks, Exxon has traded between $55.60 and $77.80 per share. The oil giant's stock finished trading at $78.06, up 0.4%.

On the Amex Natural Gas Index, Anadarko, Noble Energy(NBL Quote - Cramer on NBL - Stock Picks), Devon Energy(DVN Quote - Cramer on DVN - Stock Picks) and National Fuel Gas(NFG Quote - Cramer on NFG - Stock Picks) added as much as 2.8%.

Oil service companies Schlumberger(SLB Quote - Cramer on SLB - Stock Picks), Nabors Industries(NBR Quote - Cramer on NBR - Stock Picks), and Tidewater(TDW Quote - Cramer on TDW - Stock Picks) lead declines, down from 1.5% to 2.3% each.

A slew of ratings actions were also hammering or boosting energy stocks. Deutsche Bank upgraded ConocoPhillips from hold to buy and set a $80 price target. The investment bank expects the refiner to trim expenses next year and spend more on buybacks. ConocoPhillips rose 1.2% to $68.09.

But Marathon Oil(MRO Quote - Cramer on MRO - Stock Picks) didn't fare as well from Deutsche Bank and was hit with a downgrade from buy to hold because its stock is richer than Conoco's. Marathon shares fell 0.4% to $95.09.

Banc of America Securities trimmed Chevron's(CVX Quote - Cramer on CVX - Stock Picks) and Hess'(HES Quote - Cramer on HES - Stock Picks) stock from buy to neutral. Chevron gained 0.6% to $73.95, while Hess slipped 1.1% to $50.07.

Wachovia hammered Schlumberger with a downgrade from outperform to market perform because its stock was pricier than its competitors.

Chemicals company Ashland(ASH Quote - Cramer on ASH - Stock Picks) lost its supply agreement with Dow Chemical(DOW Quote - Cramer on DOW - Stock Picks) to distribute Dow's plastics in North America effective March 1. Investment bank JP Morgan followed up with a downgrade of Ashland(ASH Quote - Cramer on ASH - Stock Picks) from overweight to neutral after the announcement Tuesday.

Ashland's shares finished down 1.4% at $66.74.