VIENNA, Austria – Oil prices rose Monday, reversing an earlier decline of more than $1 a barrel as OPEC (search) pondered a production increase next month.
While U.S. crude supplies have risen for eight straight weeks, analysts remain concerned about the expected rise in gasoline demand and the potential for refining bottlenecks as summer approaches.
After dropping as low as $52.10 per barrel, light, sweet crude for May delivery settled 39 cents higher at $53.71 on the New York Mercantile Exchange (search). That is more than $4 below the intraday peak set last Monday, though prices remain 42 percent above year ago levels. In London, Brent crude futures rose 32 cents to finish at $53.21 a barrel on the International Petroleum Exchange (search).
Nymex gasoline futures rose by 1.32 cent to settle at $1.5498 per gallon.
Oil analyst Peter Kemp in London told the Energy Intelligence Web that despite a five-day price slide last week, it's "seriously premature" to predict a burst in the oil bubble anytime soon.
"Prices are volatile but still well above $50 on both sides of the Atlantic," said Kemp. "The slight slippage of recent days was more of a reality check than a correction, in recognition of the build in inventories that will occur in the second quarter."
Demand is expected to rise in the third quarter due to the onset of the summer driving season in the United States, the world's biggest crude oil consumer.
"As the driving season starts and the air conditioners get turned on, we're going to see some more demand," said analyst Alex Scott with Seven Investment Management in London.
Over the longer term, said Scott, bottlenecks in refining capacity also remain an issue "and can continue to create episodes of real tightness."
Last week, the Energy Department (search) said the nation's inventory of crude oil grew by 2.4 million barrels to 317.1 million barrels, or 8 percent higher than last year. The agency's next report is scheduled for release Wednesday.
OPEC raised output limits by 500,000 barrels per day in March to 27.5 million barrels per day in a bid to cool prices. It left room for a second 500,000 barrels per day increase before a June meeting if prices failed to drop below $55. The group began talks on the second rise last weekend and said then it could decide within two weeks.
"Kuwait believes that the increase in production is still possible and may come in May due to the expected rise in demand by about 1 million barrels per day in the third quarter," OPEC President Sheik Ahmed Fahd al-Ahmed al-Sabah, also Kuwait's oil minister, said Sunday.
Qatari Oil Minister Abdullah al-Attiyah also said this weekend that a second output increase ahead of the Organization of Petroleum Exporting Countries' June 15 meeting was still possible. Recently, the 11-member cartel has been attempting to counter frequent price surges and a jittery market with announcements of production increases.