Oil prices drop on Opec news, stronger dollar

Oil prices dropped on Tuesday after a key Organisation of the Petroleum Exporting Countries (Opec) member left open the possibility the oil cartel will increase output to curb rising prices, and following the strengthening of the dollar overnight.

Saudi Arabian Oil Minister Ali al-Naimi said production will be discussed when Opec meets next month in Abu Dhabi in the United Arab Emirates.

Light, sweet crude for December delivery fell by six cents to $94,56 a barrel in Asian electronic trading on the New York Mercantile Exchange by mid-afternoon in Singapore. The contract fell by $1,70 to settle at $94,62 a barrel on Monday.

The long-term impact of another increase in oil production by Opec isn’t clear. A previous 500 000-barrel-a-day increase in production, which went into effect on November 1, was widely viewed as too little, too late to stop crude’s run-up to near $100 a barrel. Crude prices rose by 42% between late August and last week, when they reached a record of $98,62 a barrel.

A rebound in the dollar on Monday also pressured crude prices. 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 US currency is falling. Many analysts blame speculative investing driven by the falling dollar for the rally in crude prices over the past two-and-a-half months.

Oil prices were dampened as well by worries over the US economy as Wall Street fell its fourth straight session on expectations of further fallout from the ongoing credit crisis. The Dow Jones industrials ended below 13 000 for the first time since August.

Oil prices could be volatile this week due the expiration of crude options on Tuesday and the expiration of the December crude contract on Friday.

Investors will have plenty of additional supply-and-demand data to chew on. On Tuesday, the International Energy Agency will issue its monthly report on crude supplies and demand. On Thursday, the US Energy Department’s Energy Information Administration (EIA) will issue its weekly inventory report.

The EIA report is expected to show US crude oil inventories fell by 300 000 barrels last week, according to the average estimate of analysts polled by Dow Jones Newswires. Gasoline inventories, on average, likely fell by 100 000 barrels, while distillate stocks were expected to fall by 300 000 barrels. Refinery use likely rose 0,7 percentage points to 86,9% of capacity.

In London, December Brent crude fell by 58 cents to $91,40 a barrel on the ICE Futures exchange. — Sapa-AP

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