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Oil Down on OPEC Supply Pledge

Updated from 10:51 a.m. EDT

Oil prices slipped under $66 Monday after the Organization of the Petroleum Exporting Countries said it would continue pumping at full capacity, easing concerns of lower global supplies before the winter heating season.

OPEC, which controls 40% of the world's crude, opted to keep its production quota at 28 million barrels per day to help lower prices. The group, which met in Vienna today, has maintained that level since July 2005 and is currently producing 27.8 million barrels of crude per day.

Cooling tensions with Iran over its refusal to halt uranium enrichment also tempered prices. European and Iranian diplomats met on Sunday to discuss cutting Iran's nuclear program, with an Iranian official saying the country may suspend its nuclear program for two months.

"We have reached common views on a number of issues," Ali Larijani, Iran's top nuclear negotiator, said on Sunday, Bloomberg reported. "Many of the misunderstandings were removed."

Iran restarted uranium enrichment after a two-year hiatus ostensibly to produce more electricity. The U.N., however, has demanded it stop, and has threatened to levy sanctions against the world's fourth-largest crude producer.

Javier Solana, the European Union's foreign policy chief, and Larijani will meet next week at an unspecified date to continue discussions.

The light, sweet crude contract for October delivery shed 64 cents to settle at $65.61 a barrel. The front-month contract has lost ground for the past six days. During the session, prices touched a five-month low of $64.85.

The decline dragged down the rest of the energy complex with it, with wholesale unleaded gasoline dipping 1 cent to $1.59 a gallon and heating oil declining 3 cents to $1.80 a gallon.

Energy prices were also lower after BP (BP - Get Report) said it could resume full production at its Prudhoe Bay oil field in Alaska by October. The oil giant shut down half of the field last month after discovering corrosion and pipeline leaks in the country's largest oil field. Before the shutdown, Prudhoe Bay was producing 400,000 barrels of crude per day, and now is pumping half that amount.

Before BP can resume production, however, it must convince federal officials there will be no more leaks at the field.

Oil prices have tumbled 17% since July thanks to rising supplies and easing tensions with Tehran. As prices have skyrocketed, consumption has slowed. This year, OPEC expects demand growth in the U.S. to grow by only 90,000 barrels per day. In 2005, growth jumped by 230,000 barrels per day and 520,000 barrels per day in 2004.

Low prices could prompt OPEC ministers to decrease production at their December meeting in Nigeria.

"I am very concerned about the drop in prices. We do not know how much further they can go, and we need to review that in depth," said Edmund Daukoru, Nigeria's oil minister and OPEC secretary general, The Associated Press reported.

Mild temperatures and little hurricane activity pressured natural gas prices, which closed down 1 cent to $5.67 per million British thermal units. As long as hurricanes don't threaten oil or natural gas installations in the Gulf of Mexico, home to a quarter of the country's energy production, natural gas prices will likely remain low. Some utilities use natural gas to produce electricity.

Hurricane Florence, 90 miles northwest of Bermuda, was lashing the island with strong winds and heavy surf. The storm was moving north-northeast and wasn't expected to make landfall on the U.S. coast.

Energy shares were following crude lower, with the Amex Oil, Philadelphia Oil Service and the Amex Natural Gas indices off 2% to 4%. Hess (HES - Get Report), Chevron (CVX - Get Report) and Anadarko Petroleum (APC) were leading declines among drillers and refiners on the Amex Oil index, down about 3% each.

Exxon Mobil (XOM - Get Report), the largest publicly traded oil company, was losing 2.9% to $64.89.

Oil service companies Baker Hughes (BHI), Global Industries (GLBL) and Smith International (SII) were shedding the most on the Philadelphia Oil Service index, down 4% to 5% each.

On the Amex Natural Gas Index, Southwestern Energy (SWN - Get Report), XTO Energy (XTO) and Pogo Producing (PPP - Get Report) were giving back about 5%.

Kinder Morgan (KMI - Get Report) and Nisource (NI) were the only bright spots among natural gas producers, each rising about 0.2%.

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