The price of crude oil continued to fall Thursday, slipping below $30 a barrel on growing expectations that Saudi Arabia will help stabilize oil prices in the near future by pumping as much as a half-million more barrels a day.
While the benchmark August oil future contract managed to stay above the $30 threshold on Wednesday, it slipped as low as $29.80 midday Thursday before rebounding somewhat, ending trading down 68 cents, or 2.2%, at $29.99 a barrel on the
New York Mercantile Exchange
Crude oil for August delivery fell 5.6% on
Wednesday, the first day of New York oil trading after Saudi Arabia, OPEC's top producer, said it would increase its production in an effort to reign in rapidly rising oil prices.
With the cost of crude oil falling, industry analysts expect gasoline prices at the pump to fall as well. Retail gas prices have already declined 20 cents a gallon over the past two weeks in the Midwest, after climbing above $2 earlier this summer.
"The Midwest gasoline problem has been resolved -- for now at least -- thanks to market forces,"
said on Thursday, adding that further declines in gasoline prices are likely if Saudi Arabia carries through with its announcement to increase production. If supply increases as expected, the investment firm predicted gasoline would drop a little lower "on both the political radar screen and in the headlines."
Gasoline for August delivery is down 4 cents, or 4.2 %, at 92 cents down almost 9 cents over the last two days.
OPEC has already increased capacity under an agreement reached last
month. The group raised its output ceiling by about 3% to 25.4 million barrels a day starting July 1. The agreement included all OPEC members except Iraq.
The latest OPEC agreement represented an increase of about 708,000 barrels in the daily quota. However, the actual 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.
OPEC production last month was an estimated 733,000 barrels a day above the quotas established by the cartel in March, according to a survey by
. Saudi Arabia produced 8.241 million barrels a day of crude oil in June, up from the 8.098 million barrels a day the previous month, and more than 200,000 barrels a day above the output target established in March, according to the survey.
After the close of futures trading Wednesday, the
American Petroleum Institute
reported that U.S. crude oil inventories for the week ended June 30, fell 136,000 barrels, to 293 million barrels -- down 34.3 million barrels from the comparable period a year earlier. But gasoline inventory jumped 2.2 million barrels, helping to increase the total U.S. inventory of crude oil and refined products by 1.4 million barrels, to 775.1 million barrels.
In light of the increase in the gasoline stock and Saudi Arabia's recent announcement, Paul Chang, a
analyst, reported Thursday that he expected the short-term trading direction for petroleum will be down. His firm projects crude oil prices will stabilize in the second half of the year, averaging about $27 a barrel.
Saudi Arabia, the world's largest oil exporter, has been a vocal proponent of boosting capacity in order to stabilize oil prices, with the goal of bringing the price within a range of $22 to $28 a barrel.
The Saudis are moving to curb the high oil prices into a more desirable range, but we still think they will hold in the mid-20s," Christopher Moore, a
On Thursday, Merrill Lynch announced it had revised its oil price forecast up to $26 a barrel in the third quarter, from $23 a barrel, and raised the full-year forecast to $26.75 a barrel, from $25.50 to reflect better-than-expected oil prices and U.S. refining margins for the second quarter.
"We have left a little bit of a cushion," Moore said. "We've allowed for oil prices to ease."
Moore said the drop in the stock prices of oil companies following Saudi Arabia's announcement was temporary. Merrill Lynch expects oil sector companies to report earnings for the quarter ending in June at or slightly better than consensus expectations.
Late Thursday afternoon, many of the oil companies' stock prices had rebounded from the previous day, with
finished up 1 1/4, or nearly 2%, at 78 3/16, and
, gained about 9/16, or 2%, at 29 1/16. Shares of
gained 2 7/8, or almost 6%, to close at 50 1/8. Merrill Lynch upgraded Phillips on Wednesday to near-term accumulate rating from a near-term neutral rating.