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Oil Trades Near $68 as OPEC Meets, U.S. Driving Season Ends

Bloomberg.com

By Christian Schmollinger

Sept. 8 (Bloomberg) — Crude oil traded little changed near $68 a barrel in New York on speculation that OPEC will keep output unchanged as the end of the U.S. driving season cuts gasoline demand.

The global oil market is in “good shape,” Saudi Arabian Oil Minister Ali al-Naimi said on arrival in Vienna for tomorrow’s OPEC meeting. Kuwaiti Oil Minister Sheikh Ahmed al- Sabah said yesterday the group is unlikely to lower its targets. The U.S. Labor Day holiday marked the end of the summer vacation season when motor fuel consumption reaches its peak.

“OPEC will be making the same comments as before to just toe the line on quotas,” said Jonathan Kornafel, a director for Asia at options traders Hudson Capital Energy in Singapore. “Gasoline demand will definitely drop off. The number you hear most is about 500,000 barrels a day for the next month.”

Crude oil for October traded at $68.39 a barrel, up 37 cents from the Sept. 4 close, in after-hours electronic trading on the New York Mercantile Exchange at 1:18 p.m. Singapore time. Oil has gained 53 percent since the start of the year.

Floor trading was shut yesterday for the Labor Day holiday. Electronic trades yesterday will be booked today for settlement purposes.

Several members of the Organization of Petroleum Exporting Countries have said the group should keep its production target unchanged at 24.845 million barrels a day when it meets tomorrow. All of the 26 analysts surveyed by Bloomberg News predicted the organization will keep quotas steady.

“The market is in a very good shape, very well supplied,” Saudi Arabia’s al-Naimi said before the conference. “The price is good for everybody, consumers, producers.”

OPEC Changes

The group, which pumps about 40 percent of the world’s oil, cut quotas by 4.2 million barrels a day between September and December to prevent a glut amid the global recession. Kuwait expects no further cuts in output quotas, al-Sabah told reporters in Kuwait City yesterday.

“The widespread expectation, reinforced by comments from OPEC officials, is that we’ll see no changes there,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “Prices are high enough, so there’s not a strong case for OPEC to cut production. At the same time, fundamentals are not that tight that there is a case for them to increase output.”

Shoulder Season

Oil may also decline as the U.S., the world’s biggest crude consumer, enters what is known as a “shoulder season” where demand falls.

U.S. gasoline consumption usually ebbs through September and October, allowing U.S. refiners to complete maintenance before heating-oil demand rises. About 39.1 million Americans were expected to travel in the U.S. over the Labor Day holiday weekend, 13 percent fewer than a year earlier, according to an estimate by the AAA, the nation’s largest motoring organization.

ConocoPhillips is shutting down an amine tower at its 247,000 barrel-a-day Sweeny oil refinery in Texas for maintenance works, according to a filing with state regulators. The amine tower removes hydrogen sulfide gas from hydrocarbons during the refining process.

BP Plc said last week that it was closing a gasoline-making unit for planned work at its 470,000 barrel-a-day Texas City, Texas, plant.

“Especially this time of year there is going to be a good amount of maintenance,” said Hudson Capital’s Kornafel. “On top of that with the weak crack prices now shows there isn’t a lot of demand for oil products so there’s all the more reason for refiners to shut down.”

‘Crack Spread’

The so-called 3-2-1 crack spread, a measure of refinery profitability in converting crude into gasoline and heating oil, has dropped to $5.40 a barrel today from $12.07 a month ago.

Brent crude oil for October settlement rose as much as 61 cents, or 0.9 percent, to $67.14 a barrel on the London-based ICE Futures exchange. It was at $67.12 a barrel at 1:29 p.m. Singapore time. The contract fell 29 cents, or 0.4 percent, to $66.53 a barrel yesterday.

Royal Dutch Shell Plc’s Nigerian unit said protesters besieged its Olomoro pumping station in the southern Niger River delta to press demands for a greater share in the region’s oil wealth for local communities.

Demonstrations that started last week continued yesterday, said Tony Okonedo, a company spokesman. The protests concern “issues that are already receiving attention” from Shell, he said, adding that “we’re in dialogue with the community.”

The action hasn’t disrupted oil production because the Olomoro station has been shut since June “due to the general security situation in the region,” Okonedo said.

To contact the reporter on this story: Christian Schmollinger in Singapore at [email protected]

Last Updated: September 8, 2009 01:31 EDT

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