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Oil Prices Creep Higher

OPEC plans a production cut, but crude closes below its best level of the session.

Updated from 11:20 a.m. EDT

Oil futures surged early but closed only modestly higher Monday as a plan by OPEC to reduce output failed to provide substantial support for prices.

Saudi Arabia, OPEC's biggest crude producer, has agreed to an informal production cut and was joined by Kuwait, Algeria, Libya, Nigeria and Venezuela. All told, production will be trimmed by 3.4%, or 1 million barrels a day. OPEC, which controls 40% of the world's crude, pumped 27.8 million barrels a day last month.

Light, sweet crude finished trading at $59.96 a barrel, up 20 cents on Nymex. The contract for November delivery soared as high as $61.30 a barrel. The rest of the energy sector was mixed, with wholesale unleaded gasoline inching down 1 cent to $1.49 a gallon and heating oil increasing 3 cents to $1.72 a gallon.

Natural gas perked up on cooler temperatures in the Northeast and higher crude prices, and rose 1 cent to $6.42 per million British thermal units.

What remained unclear was whether OPEC would hold an emergency meeting before its next scheduled gathering Dec. 14. Oil prices have been choppy in the past week as speculation mounted that exporting nations would informally trim output to boost falling prices.

As recently as last month, OPEC maintained it would continue pumping at a record level of 28 million barrels a day to keep prices low. However, when prices started dipping below $60, that sentiment changed.

Limited hurricane activity in the Gulf of Mexico and plentiful fuel supplies have helped to shave crude prices by 24% since touching a high of $78.40 in mid-July. Domestic inventories of crude are 7% higher than the same period last year, and gasoline stores are 10% greater. Distillates, which include heating oil, are up 18%, and supplies of natural gas are 14% higher.

Until recently, the impasse with Iran over its nuclear program was the focus of traders' concerns. Iran restarted its atomic research after a two-year hiatus this February and has since refused to halt enrichment of uranium. Tehran maintains it needs the electricity for its growing population, while the West believes the move is a ruse to build weapons.

European and U.S. diplomats are scheduled to discuss trade sanctions against Tehran this week. Iran missed an Aug. 31 deadline to accept or deny a package of trade incentives, and on Sunday, Iranian officials called sanctions a "rusty weapon" and maintained their nation's right to nuclear power, the

Associated Press

reported.

Iranian President Mahmoud Ahmadinjad threatened on Monday to lash out with sanctions himself if the U.N. imposed a trade embargo on the country. If Iran, the world fourth-largest crude producer, trimmed exports, global supplies would likely shrink and push up energy prices.

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