Jul 24, 2007 4 min read

NEW YORK (AP) – Gas prices dropped below a national average of $3 a gallon over the weekend, while energy futures had their own decline Monday on suggestions that OPEC may increase its output. Hasan Qabazard, research director of the Organization of Petroleum Exporting Countries, told Dow Jones Newswires he thinks oil is fairly valued at $60 to $65 a barrel, leading some to conclude the cartel may be open to reversing its long-held position that oil supplies are adequate.

“I’m shocked, they had a sudden change of heart,” Phil Flynn, an analyst with Alaron Trading Corp. in Chicago, said of OPEC.

The resumption of exports at a key Angolan oil facility also weighed on prices.

Light, sweet crude for September delivery dropped 90 cents to settle at $74.89 a barrel on the New York Mercantile Exchange. September Brent crude lost 78 cents to settle at $76.86 a barrel on the ICE Futures exchange in London.

Natural gas futures fell sharply on the Nymex, tumbling 40.7 cents to settle at $6.039 per 1,000 cubic feet on growing supplies and mild temperatures, which are keeping demand in check. The drop added to last week’s 21.6-cent decline, but it was too early to tell if it would translate into lower heating costs next winter.

While natural gas supplies are below levels at this time last year, they are growing rapidly and could hit records next month, said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill., in a research note.

That’s partly due to a cooler summer that is reducing demand for gas. The combination of high supplies and low demand could send prices much lower in time for the winter heating season.

“This market appears poised for additional price lows,” Ritterbusch said.

At the pump, the average national price of a gallon of gasoline dropped to $2.968 on Monday, down 3.6 cents since Friday, according to AAA and the Oil Price Information Service. August gasoline futures fell 6.05 cents Monday to settle at $2.1041 a gallon on the Nymex. Retail prices typically lag the futures market.

Meanwhile, Nymex heating oil futures lost 3.61 cents to settle at $2.0561 a gallon.

Energy traders were most focused on the prospect that OPEC could boost output, Flynn said. For months, the cartel has maintained that high oil prices are not its fault. Analysts have criticized OPEC for cutting production this year.

“I think the market is acknowledging that OPEC is opening … a window to possibly raise production,” Flynn said.

Qabazard stopped well short of announcing the cartel will increase output, however, saying that while prices are hovering well above his target range, he sees no reason for OPEC to increase output at its September meeting.

Word that Total SA is resuming exports from its 240,000 barrel-a-day Dalia field facility in Angola also put pressure on oil prices.

“I think some of the bullish factors are now disappearing,” said Tetsu Emori, chief commodities strategist with Mitsui Bussan Futures Ltd. in Tokyo.

Oil prices are also being undercut by gas prices, which are falling on a perception that supplies are growing and demand is waning. Lower gas prices have reduced refiner’s profit margins, leaving them less willing to pay high prices for oil, their source material, when they can’t fetch as much for their product.

“The U.S. gasoline market has been the tail that’s been wagging the international crude oil dog,” said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service.

While Goldman Sachs recently predicted oil prices would go to $95 a barrel this year, a group of Citigroup analysts on Monday said crude prices are unjustified at their current levels.

“Aside from the usual raft of geopolitical noise, there seems little justification for crude’s steady march toward $80, other than the fulfillment of technical trends,” the analysts said in a report.

Indeed, evidence emerged Friday that some of the speculative buying that has pushed oil prices higher is ebbing.

“A chink in the bullish crude armor may have emerged with Friday’s Commitment of Traders Report from the (Commodity Futures Trading Commission), which showed that large speculators reduced their net-long position in Nymex crude futures by 2.5 percent in the week ending July 17,” wrote Addison Armstrong, an analyst with TFS Energy Futures LLC, in a research note.

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Associated Press Writers Pablo Gorondi in Budapest and Gillian Wong in Singapore contributed to this report.

AP-ES-07-23-07 1548EDT