Updated from 1:53 p.m. EDT

Oil prices dropped Friday as traders exited long positions ahead of the weekend. OPEC is scheduled to meet in Vienna on Monday to decide whether it will increase its formal production quotas by 500,000 barrels a day.

Crude for October delivery closed down $1.75 to $63 a barrel on Nymex. Gasoline futures dropped 11 cents, or 6%, to $1.78 a gallon.

"We are seeing a dropoff in demand coupled with a seasonal weakness in gasoline," says Phil Flynn, market analyst at Alaron Trading. "The selloff was also triggered by the lowest consumer confidence number in 13 years."

Meanwhile, Deutsche Bank upgraded

Exxon Mobil

(XOM) - Get Report

based on expectations for higher oil prices lifted energy stocks. Exxon, which was raised to buy from hold, rose nearly 2% to $63.63,

BP

(BP) - Get Report

climbed slightly, and

ConocoPhillips

(COP) - Get Report

added 1.8%.

"We think that demand is so tight that demand destruction is needed," said Deutsche Bank's analyst Paul Sankey in a note to inventors. "With conservative demand figures, we still see huge refining margins and high prices,

and one more year of oil outperformance."

Deutsche Bank increased its long-term oil price estimate to $40-$50 a barrel, up from $30-$40, citing ongoing supply tightness. It also sees refining margins reaching $22 a barrel in 2006.

"The market keeps calling the top of the cycle and getting it wrong," Sankey wrote. "Buying the oils is a safe alpha bet, because even if the prices fall,

the price to earnings ratio can expand. Ignore the graphs; these stocks are cheap."

Deutsche Bank also cut

Amerada Hess

(AHC) - Get Report

to hold from buy on the basis of valuation. Its shares fell 1.4% to $134.07.

Oil prices are roughly 10% below the all-time high of $70.80 reached a day after Hurricane Katrina slammed into the Gulf Coast on Aug. 29, but are still roughly 47% higher this year.

Still, analysts are concerned that overstretched refining capacity could fail to meet heating oil demand if the winter is particularly cold.

The Mineral Management Service said it will probably take three months or more for Gulf Coast production to resume 90% of its capacity. Although it looks like the damage to pipelines wasn't as bad as that caused by Hurricane Ivan. More than 100 billion cubic feet of gas has been lost since Katrina, and 21.4 million barrels of oil were curtailed, the service said.

Many consider OPEC's proposed production hike to be unnecessary, especially after only 11 million barrels were actually purchased from the U.S. strategic reserves after Katrina. Thirty million barrels were offered.

In company news, after it was raised to buy from hold by A.G. Edwards, shares of

Ensco

(ESV)

rose 2.4% to $40. Analyst Poe Fratt said in a note that the offshore driller is benefiting from a favorable jack-up market and "positive jack-up pricing trends," with a "solid upside potential."

Raymond James said Ensco's latest rig fleet status showed it has received higher dayrates across the fleet, emphasizing a record high jack-up rig rate of $180,000 a day for one its rigs employed in New Zealand.