Crude Oil Prices Fall on Hopes of Production Boost

Crude oil fell for the first time in five trading sessions Friday, retreating from a 10-year high after Saudi Arabia signaled that OPEC will expand production to trim prices at a meeting this weekend in Vienna.

The drop in crude was felt on the stock market, where the recent rally in energy company shares cooled a bit.

Crude oil for October delivery fell $1.76, or 5%, to $33.63 a barrel on the New York Mercantile Exchange. It was the biggest decline since July 5. Oil on Thursday rose to $35.39, the highest price since November 1990, during the Persian Gulf conflict.

Heating oil for October delivery fell 3.37 cents, or 3.3%, to 99.49 cents a gallon on the Nymex. Gasoline for October delivery fell 5.38 cents, or 5.4%, to 95.05 cents a gallon.

Ali Ibrahim Naimi, oil minister to the world’s top producer, said Saudi Arabia wants OPEC’s benchmark price between $22 and $28 a barrel, down from Thursday’s $33.84. The Organization of Petroleum Exporting Countries is expected to increase daily supplies by 500,000 to 800,000 barrels, or about 2% of the cartel’s output, in an attempt to reverse a 24% rally in crude prices since the end of July.

“The market is starting to embrace a rise of 700,000 barrels coming out of the [OPEC] meeting,” said William Brown, president of W.H. Brown & Co., an oil market consulting firm.

Still, an increase of that size may be insufficient to push prices into the group’s target range, analysts said. Moreover, winning support for a boost of more than 500,000 barrels a day--or less than 1% of world output--from other members of the 11-nation group may be difficult for the Saudis, analysts said.

“OPEC would need to increase quotas by about 1 million barrels a day to get prices down to $28 or $29 a barrel,” said Mohammed Abduljabbar, an oil analyst at Washington-based Petroleum Finance Co.

OPEC’s Ministerial Monitoring Committee will meet today, and the full OPEC membership will gather Sunday.

Friday’s price slide dragged down the shares of some energy companies and oil field services providers. Halliburton (ticker symbol: HAL) fell $1.38 to $52.06; Ensco International (ESV), a major offshore drilling contractor, was off $1.56 to $40.19; Chevron (CHV) fell $1.63 to $86.69; and Anadarko Petroleum (APC), a leading natural-gas exploration company, slipped $1.40 to $66.10.

Energy stocks have rallied alongside oil prices in recent months. Through Thursday, the Standard & Poor’s energy composite index had climbed 13% since late July.

OPEC members are hoping to deflect some of the anger that accompanied the recent spike in gasoline prices around the world. They want the governments of oil-importing countries to slash taxes to ease the burden of rising energy costs on consumers, Naimi said. In some European nations, taxes represent almost three-fourths of the cost of gasoline at the pump.

“OPEC will do its part to lower the crude price within the target band,” he said. “We hope the consuming countries will do their part to lower the product price.”

Oil prices that are close to the highest in a decade and steep government fuel taxes have sparked protests in Europe. In France, truckers calling for a cut in fuel levies blockaded oil depots for a sixth day, causing many filling stations to run out of gasoline. In Britain, a Royal Dutch/Shell refinery in the northern town of Stanlow was blockaded for up to six hours by farmers and truck drivers in protest.

United Nations Secretary-General Kofi Annan said Friday that he was concerned that rising oil prices could trigger recessions that would hurt all countries, including the oil exporters.

Travelers can expect to see higher air fares because of fuel costs. On Thursday, Continental Airlines (CAL), the fifth-largest U.S. carrier, announced a $20 fuel surcharge for round-trip domestic air travel on some routes, after a 27% increase in jet-fuel prices in the last month. Its shares rose $1.56 to $49.56.

Some companies have benefited from OPEC’s two previous output increases this year. Shares of New York-based Overseas Shipholding Group (OSG), a tanker operator, have risen 21% in the last month. During the same period, Maritrans (TUG), an oil shipper and terminal operator, saw its stock rise 13%.

The companies’ share prices could rise higher still, as an oil output increase may already be in the works. OPEC’s oil benchmark, an index made up of a variety of crude oil grades, was above the target range of $22 to $28 Thursday for the 19th day, OPEC reported. OPEC members have said they would raise daily production by 500,000 barrels if the index stayed above $28 for 20 consecutive trading days.