Saudi Arabia Boosts Oil Supply; OPEC Ministers Doubt Price Drop

By Maher Chmaytelli and Ayesha Daya

June 23 (Bloomberg) -- Saudi Arabia, the world's biggest oil exporter, plans to raise production for a third-straight month in July and make further increases as needed to curb record prices.

The kingdom will raise daily crude output by 200,000 barrels to 9.7 million barrels next month, Saudi Oil Minister Ali al- Naimi told officials from 35 producing and consuming countries at the summit yesterday in the Red Sea port of Jeddah. OPEC President Chakib Khelil and ministers from Venezuela and Libya said the Saudi initiative would fail to lower prices, blaming oil's climb above $130 a barrel on speculation, rather than a lack of crude.

``I don't think we'll see a lot of downward price movement as a result of this meeting,'' Mike Wittner, Societe Generale's head of oil research in London, said in an interview. ``Another 200,000 barrels a day is not a whole lot. Especially if you compare to a week ago when the first news was a possible 500,000 increase.''

Oil prices rallied to a record $139.89 in New York on June 16, five times the average six years ago, prompting riots and strikes in importing countries, hastening inflation and forcing some fuel consumers, such as airlines, out of business. U.K. Prime Minister Gordon Brown, attending the summit, proposed a ``new deal'' with producing nations, offering them investment opportunities in Western nations in return for greater access to untapped reserves.

``Saudi Arabia is prepared and willing to produce additional barrels of crude above and beyond the 9.7 million barrels per day, which we plan to produce during the month of July, if demand for such quantities materializes and our customers tell us they are needed,'' al-Naimi said.

Rising Demand

World oil demand will rise 800,000 barrels a day, or 0.9 percent, this year, according to the International Energy Agency.

Prices may reach $150 a barrel this summer because of lower U.S. stockpiles and falling supply, according to Jeffrey Currie, head of global commodities research at Goldman Sachs Group Inc. The planned Saudi increase ``is a short-term response to long- term structural problems,'' such as aging oil fields, Goldman analysts said in a June 18 report.

Khelil, who is the president of the Organization of Petroleum Exporting Countries and oil minister for Algeria, said a Saudi increase was ``illogical.'' Asked whether prices would decline after the summit, Khelil and Venezuelan Oil Minister Rafael Ramirez both replied: ``I don't think so.''

John Hall, managing director of London-based consultants John Hall Associates, said Saudi Arabia would need to increase supply by at least 500,000 barrels a day, to push prices lower.

``My guess is you will see prices rise'' as supply disruptions including attacks in Nigeria persist, Hall said in an interview.

Nigeria Losses

Royal Dutch Shell Plc and Chevron Corp. have between them in the past week lost about 300,000 barrels a day of Nigerian production because of militant attacks.

Adjusted for inflation, this year's crude oil prices are at their highest ever level, surpassing a previous peak in 1980 when Iranian production slumped following the 1979 revolution.

Politicians, investors and energy leaders have debated the influence of speculation in the doubling of oil prices during the past year after the U.S. Commodity Futures Trading Commission said on May 29 it was investigating the possible role of index- fund investors. The Jeddah summit also called for improved regulation and more data on index fund activity.

Billionaire investor George Soros said on June 3 oil prices are the result of a ``bubble'' caused by speculation from index funds and a tight balance between supply and demand.

Not Wall Street

Oil billionaire T. Boone Pickens disagreed. ``It doesn't have anything to do with traders on Wall Street or anywhere else,'' he said June 17.

Gains in commodities helped Goldman Sachs, the world's biggest securities firm, surpass analysts' quarterly profit estimates.

American Airlines raised its fuel surcharge by $20 per round trip on June 11 while gasoline topping $4 a gallon in the U.S. is hastening changes in the product line of automakers including General Motors Corp. and Ford Motor Co.

Officials from consuming nations, including German Economic Minister Michael Glos, came to the Jeddah summit expecting extra oil from Saudi Arabia, which had already promised an additional 300,000 barrels a day for June, when U.S. President George W. Bush visited the kingdom in May.

U.S. Drilling

Bush last week called on Congress to lift a 27-year-old moratorium on oil and gas drilling off parts of the U.S. coastline, and his energy secretary, Samuel Bodman, said in Jeddah that a shortage of supply was responsible for high prices.

The market needs between 3 million and 4 million barrels a day of spare production capacity, compared with the 2 million barrels a day currently available, Bodman said. OPEC says the world's spare capacity is about 3 million barrels a day, with two-thirds of that in Saudi Arabia.

Saudi Arabia's production capacity will be 12.5 million barrels a day by the end of 2009, al-Naimi said, and may later rise to 15 million if necessary, using oil from five ``mega'' fields that could potentially start up within three years.

To contact the reporters on this story: Maher Chmaytelli in Jeddah mchmaytelli@bloomberg.netAyesha Daya in Jeddah adaya1@bloomberg.net

Adaro Energy Raises $1.32 Billion From Share Sale in Indonesia

June 9 (Bloomberg) -- PT Adaro Energy, the holding company of Indonesia's second-largest coal producer, raised 12.25 trillion rupiah ($1.32 billion) in the country's biggest domestic initial share sale since 1995 to help fund acquisitions and pay debt.

The Jakarta-based company sold 11.14 billion new shares at 1,100 rupiah apiece, said Vicky Ganda Saputra, a director at PT Danatama Makmur, which is helping to arrange the sale. Investors sought more than six times the amount of shares offered, he said.

``We were surprised by the investors' enthusiasm in buying Adaro shares,'' Saputra said in a phone interview in Jakarta. About 81.3 percent of those buying the shares were foreign investors, he said.

Adaro joins companies including PT Indika Energy, which owns 46 percent of Indonesia's third-biggest coal producer, in tapping the stock market for funds after prices of the fuel surged. Coal prices at Australia's Newcastle port, a benchmark for Asia, rose to a record $158.53 a metric ton in the week ended June 6, according to the globalCOAL NEWC Index.

The measure that tracks Jakarta's 15 mining stocks has more than doubled in the past year while the key Jakarta Composite index rose 15 percent. Shares of PT Indo Tambangraya Megah, a unit of Thailand's Banpu Pcl, have risen 72 percent since their Jakarta trading debut in December as record crude oil prices pulled coal prices higher.

Bumi Rises

Adaro plans to spend 1.63 trillion rupiah to acquire Agalia Energy Investments Pte, which holds stakes in Adaro Energy units. About $100 million of the IPO proceeds will be used to repay debt while 370 billion rupiah will be spent to strengthen the working capital of PT Sapta Indra Sejati, its mining contractor unit.

Shares of PT Bumi Resources, Indonesia's largest coal producer, have more than quadrupled in the past 12 months and traded at 7,900 rupiah on June 6, more than 12 times the estimated earnings for 2009, according to Bloomberg calculations.

Indika priced its shares at the top of a proposed range as investors sought 17 times the amount of stock on offer, the company said in an e-mailed statement on May 26.

Adaro's initial public offering is the largest since November 1995, when PT Telekomunikasi Indonesia raised $1.6 billion from an IPO in Indonesia and the U.S. in which $1.05 billion of the proceeds were from domestic sources.

To contact the reporter on this story: Wahyudi Soeriaatmadja in Jakarta at wahyudi@bloomberg.net.

India's Oil Dilemma

LONDON -

As oil continues to hover around the $130 mark, twice its level from a year ago, Asian governments have reluctantly been giving up their efforts to protect consumers via price controls on refined products such as gasoline. But while Indonesia this week ignored widespread protests and allowed fuel price prices to rise by 28.7% and Taiwan permitted a 15.0% increase, the big India economy is unlikely to follow the same route.

Murli Deora, India's oil minister, said in New Delhi on Friday that a decision about what to do about the soaring price of oil would be made in the next few days.

But the government is likely to be reluctant to pass on the cost of higher oil prices to the Indian consumer, ahead of next year's general elections. Over the weekend, the Congress Party lost control of the state of Karnataka to the main opposition, the Bharatiya Janata Party, in regional elections.

Adding to its reluctance is inflation, which has continued to soar despite cuts to import duties and tighter controls on liquidity. Data published on Friday showed inflation for the week rose to a staggering 8.1%. (See: "The Fly In India's Growth Story" )

The impact of the government policy has been devastating for India's three major state-run oil companies, Indian Oil, Bharat Petroleum and Hindustan Petroleum.

The government allowed fuel prices to rise by 4.0% in February, and it increased subsidies to oil companies, but that has not stopped them from losing millions of dollars a day. (See: "India Raises Ceiling On Gasoline Prices, A Little" )

The country's largest oil company, Indian Oil reported on Wednesday a fourth-quarter net loss of 4.1 billion rupees ($96.6 million), against a profit of 15.0 billion rupees ($353.4 million) a year earlier, despite receiving 189.97 billion rupees ($4.5 million) in government subsidies.

If the government does allow fuel prices to rise, it will be by a minimal amount, of around 4 rupees (9 cents) a liter, said a Mumbai-based analyst who asked not to be identified.

The government has said that it is considering a number of other options including extending the credit lines to the cash-strapped companies.

Indian Oil closed up 1.1%, at 425.35 rupees ($10.02) on Friday in Mumbai, while Bharat Petroleum fell 0.3%, to 357.70 rupees ($8.43).

Don't Believe Oil-Bubble Babble

When I jotted down all the bubbles I experienced over the past 50 years, I was surprised how long the list ran. What touched off my list-making exercise was not action in oil futures, but the Wells notice that Hank Greenberg received from the U.S. Securities and Exchange Commission.

The long vested American International Group (nyse: AIG - news - people ) headman strove to maintain the company's growth rate with mid-teens regularity. The bubble here was the rising price-earnings ratio that analysts assigned to this property that seemed to tick like a pricey Swiss timepiece, but overnight disintegrated into a one-horse shay.

Here's my bubble list in no particular chronological order: Teaching machines, vending machines, conglomerates, leveraged buyouts, Nasdaq Internet properties in the 1990s, IBM (nyse: IBM - news - people ) in the '70s, gold, the Nifty Fifty, Japanese stocks in the 80s, Chinese stocks last year, the euro today, solar energy plays, golf courses, co-op apartments in New York City, the General Motors (nyse: GM - news - people ) Building, first growth Bordeaux, Romanée Conti burgundy, Cuban cigars, junk bonds, emerging stock markets, subprime mortgages, commercial real estate, private equity, and condominiums in Las Vegas and Florida. I can't leave out 200-foot yachts. Oh, oh! There's also contemporary and modern art, old masters and Impressionist canvases. I'm remembering too much. What about stamps and race horses, baseball cards, soccer teams in Europe and Batman comics?

Even the S&P 500, which peaked in March of 2000 at 1,527. The compounded rate of return with dividends reinvested these past eight years is around 30 basis points. Without a valuation compass, you're goat meat.

Why not throw oil on that list of bubbles? After all, some of us remember when oil sold at $3 a barrel scarcely more than 30 years ago.

Bubble, bubble, toil and trouble. The market is saying don't pay attention to oil commodity futures spiking. Energy-related stocks just shaded their highs by 5 to 10%. A Goldman Sachs analyst broke into print with a $200 a barrel call on oil, but Goldman maybe talks its own book. They run commodity funds and are a major operator in oil futures trading.

The bears on oil point to short covering by traders and energy producers who sold far out futures, which spurted $10 and put the oil market close to a contango position where long futures trade above spot market quotes.

Meanwhile, oil equity analysts choose to stay behind the curve on current oil prices. At year end their earnings models carried oil at $85 a barrel for 2008. At the end of the March quarter, they moved to $95 a barrel and currently $100, far below the $130 spot price. Many analysts are modeling oil at $85 next year and beyond. The upshot of all this gamesmanship is that if oil holds above $125 a barrel, the Street's earnings projections could be 20% too low for major energy properties.

Technology analysts model aggressively. "We don't care what momma don't allow, gonna raise those P/Es anyhow." Everyone's using fiscal 2010 in their earnings models to rationalize the price of Apple (nasdaq: AAPL - news - people ), assuming huge momentum in iPhone sales because cellular carriers are likely to subsidize handsets by $100 to $200 for new subscribers on the upcoming 3G models.

Conversely, there's no expansion of energy price-earnings ratios. In fact, if oil holds above $125 a barrel, P/E ratios are below historic norms. Stocks like ExxonMobil (nyse: XOM - news - people ) (no recommendation) sell below highs made when oil was under $100 a barrel near year end.

In Exxon's case there's some justification. They can't increase oil output and oil field operating costs are inflating 15% annually. Management hasn't spent enough to replenish oil reserves. Obviously they were in the bear camp on oil prices since $60 a barrel, little more than a year ago.

But macro thinking on oil is changing. There is no longer just one lonesome bear on energy supply, Matt Simmons in Texas. The scarcity scenario for oil is taking shape in think tanks around the world. Lukoil believes oil reserves are peaking in Russia. Satellite photography of the Saudi elephantine fields confirms more pressure pumping activity to maintain current production levels.

The developing world is using more and more oil. Even if China's monetary authorities kill off an inflationary economy with high interest rates, their gross domestic product (GDP) isn't going to zero from the present 10%-a-year growth rate.

The near-term test for oil is the U.S economy. If we sink into a deep recession, oil demand sloughs off. So far, with GDP near zero, daily oil imports are down just 200,000 barrels on an 11 million barrel base. Demand destruction is coming with diesel at $5.19 a gallon.

Pickup trucks stay parked in driveways. Ford Motor (nyse: F - news - people ) just owned up to falling demand for pickups and SUVs, always the most profitable models in their line. They no longer see any daylight for earnings this year. Our airlines just sank into the sunset with share prices down to low single digits for Delta (nyse: DAL] - news - people ), U.S. Airways (nyse: LCC - news - people ) and American Airlines (nyse: AMR - news - people ). They are largely un-hedged in jet fuel, burning 500 million or more gallons, quarterly.

The arithmetic of the situation is dolorous. Airlines can't get ahead of the curve with incremental fuel bills rising into the billions for all carriers. They carry sufficient liquid assets to get them through 2008. In a recession setting next year, bankruptcies are an even money bet.

While oil stocks the past 12 months showed buoyancy, they've underperformed recent futures market fireworks. Refining and marketing profits are shrinking with no low-cost heavy oil to refine at wide crack spreads. The golden age of refining is history. There's no price gouging at the pump; refining margins stand paper thin.

The S&P 500 Index at 1,400 can't shake off the economic consequences of escalating oil costs. Consumer spending is suspect, and the cost of doing business rises for everyone--retailers, industrials and utilities. What's saving the economy from stagflation is declining home prices and the absence of wage inflation.

Growth stocks, so far this quarter, have surged 380 basis points ahead of value stocks with technology spearheading the advance. Tech is multinational, less dependent on the domestic economy and operationally oil-free. Google (nasdaq: GOOG - news - people ) continues to gain market share in Web search advertising.

Energy stocks do not meet my criteria of a bubble. The sector peaked above a 25% weighting in the S&P 500 Index more than 25 years ago. Today, energy is a 14% weighting in the index, up from 6% a couple of years ago. A year from now, I expect energy to approach 20% of the index and to give the tech sector a good run for market primacy.

Reservations center on rapidly rising operating costs for all producers, minimal refining margins and cyclically vulnerable chemicals earnings. Everyone's drilling and exploration activity needs to step up. This will boost depreciation expense for years to come.

My oil portfolio embraces service operators like Schlumberger (nyse: SLB - news - people ) and deep-water rig properties like Transocean (nyse: RIG - news - people ) and Diamond Offshore Drilling (nyse: DO - news - people ). They also face fairly sharp increases in costs for materials and labor, but drilling day rates continue to escalate going out five years on operating leases.

Oil and gas producers with rising production still get my money: Occidental Petroleum (nyse: OXY - news - people ), Apache (nyse: APA - news - people ) and Devon Energy (nyse: DVN - news - people ). Apache and Devon could be acquisition targets, as it may be cheaper to buy reserves than to drill for them. ExxonMobil sits smugly on $32 billion in liquid assets earning peanuts.

Valuation is not stretched for the energy sector unless you believe that George Soros is right and that the worldwide credit crisis cuts deeper and lasts longer. Martin Feldstein, back at Harvard, thinks we face the worst recession in the entire postwar period. Alan Greenspan is less definitive, but still worried. Keep in mind that Soros is a fox and could reverse his tracks on a dime. Economists take a little longer. There's always "the other hand."

As far as bubbles that never happened, the Turkish rugs I owned and my grandfather clocks never took off into the stratosphere. Maybe there's just too much supply. With oil, the supply is something less than endless, and the stuff is harder to find.

Martin T. Sosnoff is chairman and founder of Atalanta/Sosnoff Capital, a private-investment management company with over $9 billion in assets under management. Sosnoff has published two books about his experiences on Wall Street, Humble on Wall Street and Silent Investor, Silent Loser. He was a columnist for many years at Forbes magazine and for three years at the New York Post. Martin Sosnoff owns personally, and Atalanta/Sosnoff Capital owns for clients, the following stocks cited in this commentary: IBM, Goldman Sachs, Apple, Google, Schlumberger, Devon, Occidental, Apache, Transocean and Diamond Offshore.

Chevron May Pump Gas From Indonesia's Deep Sea Areas By 2016

By Leony Aurora

May 29 (Bloomberg) -- Chevron Corp., the second-largest U.S. oil company, may start pumping natural gas from Indonesia's deep-sea areas by 2016, boosting exports as Asian buyers pay near-record prices for the cleaner-burning fuel.

Fields in the Ganal block off Borneo island could produce ``close to'' 1 billion cubic feet a day at their peak, said Steve Green, head Chevron's Indonesian and Philippine operations. That's 13 percent of current output in Indonesia, the world's third-largest liquefied natural gas exporter.

The project would more than double Chevron's gas output in Indonesia and boost supply to an LNG plant at Bontang in East Kalimantan province, helping stem a decline in exports. State- run oil company PT Pertamina estimates LNG shipments to a group of Japanese utilities, known as Western buyers, will fall by 75 percent to 3 million tons a year after current contracts expire by March 2011 as output from some existing fields drop.

``There's a very high interest by Japanese, Korean and other new LNG buyers around the world,'' Green, managing director of Chevron IndoAsia Business Unit, said in an interview at his office in Jakarta. ``It's a great opportunity for Indonesia to develop the project. That's why Chevron is interested.''

Chevron produced 606 million cubic feet a day in Indonesia last year, including output from areas that it doesn't operate, according to its annual report. The company's share of gas production in Indonesia was 277 million cubic feet a day, or 5.5 percent of its global output.

Regulatory Approval

Chevron is awaiting approval from Indonesia's oil and gas regulator BPMigas for a development plan submitted last year, Green said. Based on preliminary estimates, it will take six to eight years to develop the fields before they can start pumping gas, he said.

The project's cost will be calculated after the development plan is approved, Green said. He declined to give estimates of the gas reserves at the fields, citing company policy.

Chevron owns 80 percent stake in Ganal area and Eni SpA holds the rest.

The cost of LNG imports by Asian buyers have doubled in the last three years as the price of crude surged. Oil has more than doubled in a year to $130.25 a barrel on the New York Mercantile Exchange today.

Drilling costs have surged as explorers intensify the search for oil and gas after crude prices reach records. The average first-quarter daily rent for deepwater floating rigs operated by Transocean Inc., the world's largest offshore oil driller, jumped 20 percent to $284,100 compared with a year earlier.

`Unique Timing'

``Demand for energy is at an all time high,'' Green said. ``This project enjoys a unique timing in the industry when the market for a project of this magnitude exists.''

Chevron, the biggest crude producer in Indonesia, is also developing a new oil field in Sumatra and investing in existing projects to slow a decline in production, he said.

The company plans to start production at the North Duri field in central Sumatra by end this year, Green said. Chevron may spend $1.3 billion to develop the area, which may produce 65,000 barrels a day at its peak in 2012.

Chevron's concessions in Sumatra, including Minas and Duri areas, pumped 425,000 barrels of oil a day last year, nearly half of Indonesia production.

To contact the reporter on this story: Leony Aurora in Jakarta at laurora@bloomberg.net

Greenspan Says Oil to Keep Rising on Capacity Limits

May 14 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said oil prices will keep rising as energy companies have invested too little in production and infrastructure to cope with higher demand.

Companies haven't been reinvesting enough to keep supply growing in line with demand, Greenspan said via satellite to a conference sponsored by Deutsche Bank AG in Singapore, according to an investment strategist who attended the event and who spoke on the condition of anonymity.

Increasing futures-market activity is expanding the aggregate demand for oil because more needs to be held in storage to meet contracts, Greenspan said, according to the person who attended the event.

``There's evidence that fundamentals are pointing to higher prices,'' said Dariusz Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong. ``Even as demand and supply are in balance, the risks to supply and oil's attraction as an inflation hedge are pulling it higher.''

Crude oil rose to a record $126.98 a barrel in New York yesterday on concern U.S. refiners may fail to meet demand for fuels such as diesel and heating oil. Supplies of distillates in developed countries fell 6.7 percent to 477.6 million barrels in March from a year earlier, according to International Energy Agency estimates.

Inflationary Pressures

Crude oil for June delivery was at $125.99 a barrel at 11:53 a.m. Singapore time in after-hours electronic trading on the New York Mercantile Exchange.

Higher prices of energy and raw materials are fanning inflation around the world, even as economic growth slows. Fed officials yesterday said they're concerned about rising prices, reinforcing traders' expectations that the central bank's next move will be to raise borrowing costs rather than lower them.

San Francisco Fed President Janet Yellen said the central bank can't be ``complacent about inflation,'' and Cleveland Fed President Sandra Pianalto said prices are rising ``somewhat faster than I would prefer.''

``If Greenspan is correct that prices will rise, then inflationary pressures would set in,'' said CFC Seymour's Kowalczyk. ``That would prompt the Fed to act to tighten lending.''

Greenspan reiterated comments made last week that the worst of the credit crisis will pass once investors fully anticipate the likely losses on securities tied to subprime and other mortgages, where defaults have surged.

Subprime Losses

He said investors are still guessing at the extent of subprime losses, which can't be ascertained until house prices stop declining, according to the person.

This week's U.S. retail sales figures mean the U.S. economy is showing flexibility and resilience, though the depressing effects of the subprime crisis will filter through into other data, he said. Retail sales excluding cars rose 0.5 percent in April, more than twice economists' forecast.

Greenspan said efforts by China to suppress the value of the yuan aren't in the country's long-term interests, adding that the government needs to open its capital account, according to the person who attended the Singapore event.

The yuan has climbed 0.2 percent against the dollar since the start of April after appreciating 4.2 percent in the first quarter.

Greenspan, 82, served as Fed chairman from August 1987 to January 2006. Since then, he has given regular speeches, written a bestselling book and begun advising clients including Deutsche Bank. The paperback version of ``The Age of Turbulence,'' including a new chapter on the credit crisis, is scheduled for publication in August.

Oil drops below $118 a barrel with supply concern easing

Oil prices fell Tuesday amid expectations that a supply disruption in Britain would soon be resolved and as the U.S. dollar strengthened against the euro.

Light, sweet crude for June delivery fell 79 cents to $117.96 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. The contract settled up 23 cents at $118.75 a barrel on Monday.

In London, Brent crude futures fell 96 cents to $115.78 a barrel on the ICE Futures exchange.

Nymex crude futures the previous day rose to a record $119.93 a barrel as labor actions in Nigeria and Scotland threatened crude supplies. But a pipeline that normally carries 700,000 barrels of crude a day to the U.K. is likely to be back in operation soon.

"The Forties pipeline shutdown in the North Sea is fully priced in and the market may be taking some mild profits on the basis that we'll see a return (of operation) ... in the near term," said Mark Pervan, a senior commodity strategist at the ANZ Bank in Melbourne.

The Forties Pipeline System was shut down by BP (nyse: BP - news - people ) PLC because of a 48-hour walkout by employees at a refinery in central Scotland. The refinery powers the onshore processing plant for North Sea crude coming through the network, and once the strike is over later Tuesday, the pipeline system should resume operation within a few days.

Oil prices also retreated from Monday's record as the dollar gained strength against the euro.

At midday in Europe, the euro stood at $1.5568, down from the $1.5645 that it purchased late Monday in New York. The British pound was down to $1.9738 from $1.9900 in New York.

The euro rose to a new all-time high of $1.6018 last week on continued concern about the U.S. economy.

"We're seeing a little bit of ... selling on the back of a firmer U.S. dollar and concerns that the dollar will maybe rebound mildly in the short term," Pervan said.

Energy investors will be closely watching the Federal Reserve's decision Wednesday on interest rates; lower rates tend to weaken the dollar. If, as expected, the Fed lowers a key interest rate by another quarter percentage point and signals that it will temporarily hold off on any future rate cuts, the dollar could strengthen, and oil might fall.

Pervan said the oil market has already priced in the expectation that the Fed will lower the interest rate by 25 basis points.

"There could be growing expectations that it could be the final cut for a while and that we'll see some upward momentum of the dollar," Pervan said.

Analysts also noted that the inability of the Nymex contract to breach the $120 mark was a possible sign that prices may have topped out for now.

"WTI needs to break $120 a barrel to maintain momentum but the resistance has been strong," said Olivier Jakob of Petromatrix in Switzerland.

Meanwhile, other supply concerns continue to support prices.

In Nigeria, workers at an Exxon Mobil Corp. (nyse: XOM - news - people ) joint venture cut production by an unspecified amount to demand more pay. The company notified clients it may not be able to meet its contractual obligations to supply oil, but said some production was not affected. Militant attacks on oil infrastructure have also cut production of Nigeria's light, sweet crude, which is easily refined. After years of attacks, Nigeria's output is dropping and the country can produce only about 75 percent of its official capacity of 2.5 million barrels per day.

"Nigeria's always a factor in oil prices, it's always had an ongoing issue with oil outages, but we're seeing a bit of an increased activity in militant attacks," Pervan said. "They'll keep a high floor on the price."

Also, union officials at the Grangemouth refinery in Scotland have said further industrial actions are possible if owner Ineos Group Ltd. doesn't back down in the dispute over pensions.

Mark Killick, spokesman for Ineos, also said restoring operations to the refinery could take as long as a month if there were problems reintroducing heat and pressure into the pipes.

In other Nymex trading, heating oil futures fell 0.57 cent to $3.2931 a gallon while gasoline prices lost 3 cents to $3.007 a gallon. Natural gas futures fell 19.9 cents to $11.130 per 1,000 cubic feet.