Crude retreats after last week's rally
OPEC signals it may boost production, pulling crude further away from $100 a barrel.
NEW YORK (CNNMoney.com) -- Oil prices fell over $2 Monday, retreating further from the $100 mark, after a minister from the Organization of Petroleum Exporting Countries indicated the cartel may increase production.
U.S. crude for December delivery settled at $94.62 per barrel, down $1.70 from Friday's settlement price of $96.32 on the New York Mercantile Exchange. Crude reached an intra-day high of $95.10 per barrel and the day's low was $93.65.
Oil made a run at $100 last week, hitting an all time trading high of $98.62 Nov. 7 before pulling back on what some said were traders booking profits on a 25 percent rise in crude prices over the last four weeks.
Saudi Arabia's oil minister said Sunday OPEC would discuss the issue of boosting production to curb prices when it meets later this year, the Associated Press reported.
"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," Tobin Gorey, a commodity strategist at the Commonwealth Bank of Australia in Sydney, told the news agency.
Oil's runup over the last month has been attributed to a falling dollar, concerns over tight supplies, and what many analysts said was a slew of speculative investing.
Prices could rise ahead of the expiration of options on December crude oil futures Tuesday, with investors holding a heap of $100 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 $100, 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 $100 a barrel, but a growing chorus is warning that futures are due for a sharp downturn soon.
Crude is now at or near all-time highs, even adjusted for inflation. The last time oil was this high was the early 1980s, when it rose to between $93 and $101 a barrel, depending on the inflation calculation used and the oil contract cited.
Crude oil prices have surged nearly five-fold since trading below $20 a barrel in 2002. Analysts say surging global demand combined with limited new supply is the main underlying factor.
The surge in prices has also attracted lots of speculative investment money, further driving prices higher.
The impact that speculative investment has on prices is under debate. Some analysts note that only a small percentage of contracts are held by speculators -- investment banks, hedge funds and others that are not end users of oil. They point to rising growth in India and China when asked why oil prices are so high, and also note these investors can cause the price to fall just as dramatically and quickly when the market turns down.
Others say there is plenty of supply and these investors are pouring money into oil because oil is easier to buy on margin than are stocks. Buying on margin is when only a small percent of the worth of the contract is required to trade it.
They say fundamentals - like rising demand from India and China - have been known for some time, yet note that crude has fluctuated from below $50 to near $100 just this year, and say that is evidence of pure speculation.