NEW YORK (Dow Jones)--Crude oil futures surged in late trading Monday, brushing off speculation that OPEC is set to agree to boost production at its Tuesday meeting in Vienna, and settling at its second-highest level ever.
Prices had been down for most of the day after Organization of Petroleum Exporting Countries delegates said key Persian Gulf producers were pushing for a production increase of 500,000 barrels a day, but the futures added $1.40 a barrel in the last half an hour of Nymex floor trading.
"The market just doesn't want to go down and is saying to OPEC that it is going to take more than a 500,000 barrel increase in production bring prices lower," said Tom Bentz, an analyst and broker at BNP Paribas Futures in New York. Bentz said technical, or chart-based, factors are also leading prices higher with traders eager to test the record intraday high of $78.77 a barrel set Aug. 1.
The front-month October light, sweet crude contract on the New York Mercantile Exchange settled up 79 cents, or 1%, higher at $77.49 a barrel, the second highest settlement for a front-month contract ever. The record settlement is $78.21, set July 31. Brent crude on the ICE futures exchange fell 97 cents to $74.10 a barrel.
While most Organization of Petroleum Countries oil ministers have said they don't see the need to increase production, de facto cartel leader Saudi Arabia is yet to weigh in on the debate and unnamed OPEC officials say some Persian Gulf producers are pushing for a 500,000 barrels-a-day production hike.
While such a hike, of the same magnitude of OPEC's most recent cut, would seem price-negative, it would be largely symbolic, rubber stamping just some of the existing leakages which are estimated to be more than 1 million barrels a day.
"With pretty much all OPEC producers, except Saudi Arabia, already producing at capacity, all the change in the quota will do is to legitimize over-production," said Nauman Barakat, senior vice president at Macquarie Futures USA in New York.
The 10 OPEC members subject to quotas agreed to reduce production to 25.88 million barrels a day at their last meeting, in February, but a Dow Jones Newswires survey of oil traders, analysts and industry sources show the OPEC-10 produced 26.98 million barrels a day in August, 1.1 million barrels more than their agreed limit.
Some major OPEC nations are weighing an increase in production quotas of up to 500,000 barrels a day, an OPEC official said Monday in Vienna, where the meeting is being held.
Also boosting prices were forecasts for further drops in U.S. crude oil inventories.
Stockpiles are expected to fall by 2.7 million barrels in U.S. Department of Energy data due Wednesday, according to a Dow Jones Newswires survey of analysts. Gasoline stockpiles are seen falling by 500,000 barrels, while distillates, which include heating oil and diesel fuel, are expected to grow by 1.4 million barrels. Refinery use is seen falling by 0.1 percentage point.
Front-month October reformulated gasoline blendstock, or RBOB, fell 78 points to $1.9786 a gallon. October heating oil rose 2.84 cents to $2.1716 a gallon.
