Got oil?

The

Organization of Petroleum Exporting Countries

, or OPEC, does and is willing to pump an additional 800,000 barrels a day, a move aimed at slowing the recent jump in oil prices. Last week oil traded above $35 per barrel for the first time since the Gulf War before easing to $33.63 a barrel on Friday ahead of the OPEC meeting.

Still, despite OPEC's willingness to send more crude into the market, it isn't immediately clear that the move will help settle prices for crude or crude-related products in the near-term. Rising oil prices have set off protests in Europe, and in the U.S. stocks are at extremely low levels, especially in the heating oil market. Most analysts believe the price situation will get tougher despite the OPEC move.

One reason the OPEC move isn't expected to have an immediate impact is that many market followers believe Saudi Arabia has already been pumping oil at 500,000 barrels per day above its quota. Indeed, OPEC data shows that the cartel is already producing nearly 26 million barrels a day, above the 25.4 million quota set in June. Hence, increasing the quota to 26.2 million barrels, the level agreed to in Vienna on Sunday, appears to be a real increase of only 200,000 barrels per day.

Many analysts believe that an increase north of 1 million barrels-a-day is required to drive prices lower. "Prices in the fourth quarter will likely be higher unless OPEC releases a lot more oil," says Leo Drollas, Chief Economist for the Centre for Global Energy Studies in London. "They could still go to $37-$38 a barrel and will likely average around $31."

In the U.S., gasoline and heating oil prices are unlikely to drop in the wake of today's move. Lengthy lead time between the delivery of crude and the subsequent refining time will contribute to extended scarcity for these two products. Winter's pending arrival won't help matters. Domestic refiners are running at full capacity currently just to keep pace with current demand. It is unlikely that anything can be done to boost supplies, especially of heating oil, and ease the fear of price spikes into the winter months.

"It is now too late for OPEC to prevent a tight distillate market this winter," wrote Drollas in a recent report. "Downstream capacity constraint means that any further output increase will not reach consumers in time to avoid possible price spikes."

In addition to refining issues, tanker utilization is extremely high. Retirement of older ships and longer delivery routes are creating a different kind of squeeze. Even as OPEC pumps more oil, the roughly 3,100 tankers around the globe are already close to capacity.

"The true driver of oil prices over the next twelve months will be oil transportation capacity limitations, rather than OPEC production limitations," wrote Raymond James analyst Marshall Adkins in a recent report. "It looks like $30 oil is here to stay."

Transportation tightness has driven crude oil shipping costs sharply higher, rising three-fold since January and nearing 30-year highs. For example, the cost of moving 500,000 barrels of crude from Venezuela to the Gulf of Mexico increased to $880,000 in August from $330,000 late last year. That led Drollas and his colleagues at CGES to suggest, "In the short term, it is difficult to see how the market can absorb much more OPEC oil."

While OPEC's actions may well cause oil prices to dip as traders return to their posts Monday, it is unlikely that a symbolic increase in production will come close to reaching OPEC's stated goal of stabilizing crude prices in the mid-$20 range, at least before the spring thaw.

Phillips on Chevron's Dance Card?

The Sunday Times

of London reported that

TST Recommends

Chevron

(CHV)

is close to a deal to purchase

Phillips Petroleum

(P)

for nearly $70 a share or over $18 billion.

The Sunday Times

says the deal could be announced by the end of the year. Chevron is the fourth-largest integrated oil company in the United States. Phillips is the seventh largest.

The deal would come on the heels of the merger of the companies' chemical businesses which prompted Chevron chairman Kenneth Derr's interest in the balance of the Oklahoma-based company's assets.

Chevron has been looking for a partner for two years and reportedly was close to a deal with

Texaco

(TX) - Get Report

before disagreements over management and board control scuttled the deal. In addition, the prospects of a Chevron/Texaco merger were fraught with potential regulatory issues. A merger with much smaller Phillips would likely avoid both problems.

Neither company could be reached for comment.

Christopher S. Edmonds is president of Resource Dynamics, a private financial consulting firm based in Atlanta. At time of publication, Edmonds' firm was long Phillips Petroleum, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to

Chris Edmonds.