Oil surges as OPEC maintains production level

/ Source: The Associated Press

Oil prices settled above $100 per barrel Wednesday after OPEC unexpectedly announced that it will keep production levels where they are.

Analysts thought the 12-member group would boost production in an effort to cool off oil prices and take some pressure off the world economy. Increased global demand combined with violent uprisings in oil-rich countries of North Africa and the Middle East forced crude prices 25 percent higher from January to April.

Instead of raising production the Organization of the Petroleum Exporting Countries ended a contentious meeting in Vienna without changing quotas for its members.

"We are unable to reach consensus to ... raise our production," OPEC Secretary General Abdullah Al-Badri said.

Benchmark crude for July delivery rose $1.65 to settle at $100.74 per barrel on the New York Mercantile Exchange.

In London, Brent crude added $1.07 to settle at $117.85 per barrel on the ICE Futures exchange.

The International Energy Agency in Paris said it was disappointed by OPEC's inaction. "Ongoing supply disruptions, as well as the fragile state of the global economy, call for a prompt increase in supply," the agency said.

OPEC countries, which supply about 40 percent of the world's petroleum demand, typically produce more than their quotas anyway. Still, analysts and investors watch where quotas are set to get a read on whether OPEC is comfortable with the price of oil.

Independent oil analyst Jim Ritterbusch said OPEC's decision shows that oil-producing countries are more interested in cashing in on high oil prices right now than in stabilizing energy markets. He thinks that Saudi Arabia, which pushed to increase production, will quietly crank up exports anyway.

"They can afford to take a long-term view of the market," Ritterbusch said. "They don't want countries to turn to alternative fuels. They don't want people on buses."

Even if Saudi Arabia produces more, J.P. Morgan analyst Lawrence Eagles said it won't be able to pump enough on its own to fully meet increased demand in the third quarter. Eagles expects Brent crude will rise to an average of $130 per barrel this year.

Meanwhile, the Energy Information Administration said that U.S. oil supplies dropped by 4.8 million barrels last week, more than three times the decline that analysts expected. Gasoline supplies grew by 2.2. million barrels, twice as much as expected, while the four-week average demand number increased for the first time in 11 weeks.

In other Nymex trading for July contacts, heating oil added 1.67 cents to settle at $3.0937 per gallon and gasoline futures fell 1.32 cents to settle at $2.9787 per gallon. Natural gas rose 1.6 cents to settle at $4.847 per 1,000 cubic feet.