Crude oil prices continued to climb Monday, reaching another 10-year high on renewed concerns that the planned production increase from the
Organization of Petroleum Exporting Countries
won't raise supplies enough to heed off higher oil prices.
The October contract for crude oil, which expires Wednesday, traded as high as $37.15 a barrel Monday on the
New York Mercantile Exchange
before settling at $36.88, up 96 cents from Friday's close. That's a gain of nearly $4 a barrel since the intraday low of $32.70 set last Monday after OPEC announced that it would increase production.
The strong rally in crude, however, did not have as big an impact on heating oil and gasoline. Heating oil for October delivery rose 0.86 cent to $1.0415 a gallon, while October unleaded gasoline gained 0.36 cent to 97.02 cents a gallon.
At a specially scheduled meeting on Sept. 10, OPEC ministers agreed to raise their oil production ceiling by 3%, or 800,000 barrels a day, starting Oct. 1. In the days following the announcement, however, analysts and industry groups have said that the actual increase is not likely to be anywhere near 800,000 barrels a day, since many OPEC members are already producing at or above capacity.
OPEC's official production quota increase is more than the half million barrels a day recommended under the organization's price band mechanism if the "basket" oil price remains above $28 for 20 consecutive days, as it had before the meeting. Still, while the latest
increase raises OPEC's output target to 26.2 million barrels a day, there are questions about whether some of the organization's members are even capable of meeting the new output level.
Current forecasts among analysts range for a net increase of just 100,000 additional barrels to about 300,000 more barrels a day -- far less than the production quota would indicate.
One reason for the difference, say analysts, is that many OPEC members are already producing at or above capacity. Only Kuwait, the United Arab Emirates and kingpin Saudi Arabia, the world's largest oil exporter, are believed to have enough capacity for substantial production increases.
, a London-based financial services firm, said the oil output for these three countries in August was already higher than the newly approved production ceilings.
That means the new agreement may simply legitimize the current "cheating" among members. Further confusing matters were reports Friday that OPEC's president, Ali Rodriguez, had said that crude oil could still reach $40 a barrel, though he thought that price level would be unsustainable.
OPEC has agreed to meet again on Nov. 12 to reassess oil supplies and prices. In the meantime, the organization will maintain its price mechanism, which aims to keep oil in its basket (which includes blends from Algeria, Indonesia, Saudi Arabia and Venezuela) at $22 to $28 a barrel. Still, few believe
prices are likely to fall within that range before next year.
In fact, after dipping initially on the OPEC announcement, prices have continued to climb throughout the past week, setting a series of new 10-year highs.
"The market is just increasingly concerned that we're not going to see enough oil from OPEC in a timely fashion," said Tim Evans, senior energy analyst for
. "We need more oil and we need it sooner, but OPEC ministers are willing to close their eyes to it until November."
Without additional supplies from OPEC or assurances that the administration might use the nation's strategic oil reserves, Evans said, there is no cushion against any supply disruptions. That makes oil prices particularly vulnerable to outside factors, from threats of hurricane damage to offshore oil rigs last Friday to continued problems with Columbian oil pipeline bomb blasts.
"The U.S. is likely to release oil only if it has seen that the recent OPEC hike is not working, and it will take until the middle of October at the earliest before a conclusion can be reached," GNI analysts said in a research note Monday.
In the meantime, analysts say oil prices are likely to remain in the mid-$30s per barrel.
"It's way too early to call a top here," Evans said. " You have to say prices will go higher before they go lower. There's still a strong uptrend here."