Oil Lower After OPEC Vote

March crude falls to $68 a barrel.
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Updated from 10:45 a.m. EST

Oil futures fell Tuesday after the Organization of Petroleum Exporting Countries voted to maintain its current high production quotas.

March crude lost 43 cents to $67.92 a barrel on the Nymex following OPEC's widely anticipated vote in Vienna to keep the cartel's daily output the same, at 28 million barrels.

"OPEC was a bore," said Phil Flynn, energy analyst at Alaron Trading in Chicago. "No surprises there at all."

Some OPEC members did hold out the possibility of future cuts at the group's March meeting.

"We're very pragmatic," Abdullah Bin Hamad Al-Attiyah, Qatar's oil minister, told reporters in Vienna, the

Associated Press

reported.

The vote came as tensions heated up elsewhere. Britain, Russia, France, China and the U.S. asked the International Atomic Energy Agency to refer Iran to the U.N. Security Council over its decision to restart nuclear testing. The IAEA meets Thursday in Vienna and could impose economic sanctions or a stiffer penalty against the country.

Possible supply disruptions in Iran have roiled the markets since early this month. Iran declared it would resume nuclear research to produce more electricity, though the West suspects Iran wants to make an atomic bomb. Oil prices have climbed 11% since Jan. 3, when Iran announced its nuclear intentions.

Over the last two years, crude prices have more than doubled courtesy of reduced supplies, new inflows of speculative money and growing economies in the U.S. and Asia. Many observers, though, contend skyrocketing prices reflect the greater role of hedge funds in energy markets.

"There is very little that anyone can do to prevent prices from moving higher as long as a growing amount of investment dollars continue to add to a premium," said John Kilduff, senior vice president in the energy risk management group of Fimat USA in New York.

Supply fears have been enough to move energy markets even though economic sanctions against Iran have yet to be imposed. Traders have been focused on Iran because there is little excess capacity to make up for Iran's daily production of 3.9 million barrels. OPEC has only 1.5 million barrels of spare capacity -- less than half of Iran's daily production.

"Consuming nations want stability and view supply interruptions and the price spikes that come with them as a threat to their economic and even military security," said James Williams, an energy economist with WTRG Economics in London, Ark.

Almost a third of the price of oil, or $15 to $20, comes from supply worries, Williams said. Prices probably won't drop that much until there is more oil on the market.

Falling oil prices dragged down natural gas by 7 cents to $9.32 per million British thermal units. Heating oil dipped 3 cents to $1.80 a gallon and unleaded gasoline declined 5 cents to $1.72 a gallon. Both contracts expired Tuesday and injected some volatility into trading.

Among companies,

Valero Energy

(VLO) - Get Report

said its fourth-quarter net income more than doubled to $1.3 billion, or $2.06 per share, on high refining margins and the addition of new capacity. Adjusted earnings of $2 a share were 6 cents ahead of estimates.

The company predicted that refining margins will stay wide.

Valero's stock is up 22% this year and has nearly tripled since the start of 2005. Investors used the earnings release as an opportunity to lock in profits and the shares were recently down 18 cents, or 0.3% to $63.02.

Valero said that gasoline prices will probably rise this year because of seasonal refinery shutdowns, new restrictions on sulfur in gasoline and diesel, and the phase-out of MBTE, a gasoline additive suspected of polluting water supplies. The changes, imposed by the U.S. Environmental Protection Agency, will likely be difficult for refiners as they scramble to maintain production. European imports, which could have made up the shortfall, won't help because they also contain MBTE.

"That's going to be a triple whammy for gas prices and imports," said Gene Edwards, Valero Energy's executive vice president of corporate development and strategic planning, in the company's conference call Tuesday.

Fourth-quarter earnings at power producer

Entergy

(ETR) - Get Report

fell 42% to $90.2 million, or 43 cents per share, because of hurricane-related damage and lower usage among its residential and industrial customers along the Gulf Coast. Analysts polled by Thomson Financial had expected earnings of 54 cents per share.

Revenue was $2.65 billion during the quarter, against $2.3 billion in 2004 thanks to higher electricity rates and sales in its nuclear division.

Entergy's shares were picking up 51 cents, or 0.7%, to $69.74.