The price of crude oil slipped back into the mid-$29-per-barrel range on Monday after
Organization of Petroleum Exporting Countries
Secretary-General Rilwanu Lukman indicated that the cartel might need to boost oil production in order to prevent further price hikes.
Since Saudi Arabia announced a week ago that it would pump an additional half-million barrels of oil a day, the price of crude oil has dropped by about $2 per barrel -- most of it in one day's trading session. Monday afternoon in New York, oil closed down 59 cents, or nearly 2%, at $29.69 per barrel.
OPEC has already increased capacity under an
agreement approved last month. Saudi Arabia's surprise announcement, which came just after the agreement went into effect, sent shockwaves through the cartel. Most members appeared reluctant initially to support Saudi Arabia's unilateral decision.
OPEC had already agreed to raise their output ceiling by about 3% to 25.4 million barrels a day starting on July 1. The deal included all of OPEC's 11 members except Iraq.
While that represented an increase of about 708,000 barrels in the daily quota, the actual daily increase in production is expected to be much lower -- by some estimates, just 300,000 extra barrels a day -- as many OPEC members were already exceeding their production quotas, producing at or near capacity before the new agreement went into effect.
News that OPEC's kingpin, Saudi Arabia, would pump an additional 500,000 barrels a day had a more immediate impact on the cost of crude oil -- with the benchmark August oil future contract slipping below the $30 threshold
Wednesday, the first full day of trading after the announcement.
Since then, mixed messages from OPEC officials have left traders shaking their heads while the price of crude oil hovers around the $30-per-barrel range.
OPEC President and Venezuelan Oil Minister Ali Rodriguez initially insisted that the cartel stick to its June agreement, but later said output could be increased if necessary.
New comments over the weekend from Lukman suggest that the cartel is finally warming to the Saudi plan for an increase in crude oil production. Lukman told
on Saturday that he thought the market might need as much as 500,000 barrels a day more oil.
Rodriguez has been reluctant to show support for the Saudi plan before his scheduled trip to Saudi Arabia on Wednesday, when he will have a chance to meet with Saudi Oil Minister Ali al-Naim.
Further complicating matters,
announced a plan Monday to swap 2 million barrels of crude from the
U.S. Strategic Petroleum Reserve
in exchange for heating oil, to keep in reserve for use in the event of shortages this winter in the Northeast.
"What OPEC's afraid of is that the price will get knocked down too far so you don't want to add to that fear by making them think the U.S. is going to feed the U.S. Strategic Petroleum Reserve to the market on a regular schedule, competing with OPEC," said Tim Evans, senior energy analyst at
Heating oil and crude oil prices for August delivery stumbled Monday, with crude oil closing down 59 cents at $29.69 per barrel and heating oil ending the day down 97 cents at $77.93 on
Meanwhile, the price of gasoline gained -- a move analysts attributed to a combination of higher
demand and inventory draws from the holiday weekend as well as refinery problems.
Gasoline for August delivery ended the day up $2.30 at $94.94. "This suggests we're really seeing a revival of demand," Evans said.