Oil prices drop more than one dollar on reports OPEC may discuss output hike

Oil prices fell more than one dollar a barrel Monday in Asia after reports that the oil exporter group OPEC would discuss increasing its output at an upcoming meeting in a bid to cool record crude prices.

Photo: Oil prices drop more than one dollar on reports OPEC may discuss output hike

Oil prices drop more than one dollar on reports OPEC may discuss output hike

Saudi Arabia's oil minister said Sunday the oil cartel would discuss the issue of boosting production to curb prices when it meets later this year.

"The comments by the Saudi oil minister on the weekend didn't necessarily say that they're going to increase production, it wasn't quite that extreme, but the mere fact that he's speaking aloud about it shows that the issue is there," said Tobin Gorey, commodity strategist at the Commonwealth Bank of Australia in Sydney.

Oil prices have surged to near US$100 per barrel recently amid concerns about supplies, a weak U.S. dollar and the Organization of Petroleum Exporting Countries' apparent reluctance to pump more crude into the market.

But the Saudi oil minister, Ali al-Naimi, also said Gulf producers could not control crude prices.

"Gulf countries do not control prices but they try as much as possible to secure supplies and market security," he said.

Many traders and analysts say the effect of any output hike on oil prices is likely to be limited as the recent rise in crude futures has had more to do with speculation than a real demand for Middle Eastern crude.

OPEC's next policy meeting is scheduled for Dec. 5 in Abu Dhabi.

Light, sweet crude for December delivery dropped US$1.26 to US$95.06 a barrel in Asian electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. The contract rose 86 cents to settle at USD96.32 a barrel Friday.

Prices could rise ahead of the expiration of options on December crude oil futures Tuesday, with investors holding a heap of USD100 call options - which allow traders to buy the underlying futures contract at a predetermined price and date.

Holders of the call options will enjoy a payout if prices hit USD100, but moderating or falling prices on Monday will send them scrambling to sell to limit their losses.

Estimates of where crude prices will head from here vary. Many analysts expect prices to rise to at least USD100 a barrel, but a growing chorus is warning that futures are due for a sharp downturn soon.

Few analysts believe the underlying fundamentals of supply and demand support such high prices. Many blame speculative investing fueled by the weak dollar for oil's recent run-up. Oil futures offer a hedge against a weak dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the U.S. currency is falling.

In London, December Brent crude futures fell 73 cents to USD92.45 a barrel on the ICE Futures exchange.

Nymex heating oil futures lost 2.74 cents to US$2.5914 a gallon (3.8 liters) while gasoline prices declined 2.5 cents to USD2.431 a gallon. Natural gas futures fell 7.7 cents to USD7.82 per 1,000 cubic feet.