Crude Falls From 6-Week High

Oil prices fell Monday as traders took profits from a six-week peak, though worries about thin supplies of products like diesel and heating fuel limited the losses.

OPEC (search)'s president told Reuters Monday the cartel might increase its formal output quotas when it meets in Vienna next week, but said raising the ceiling would not affect actual production because members are already pumping above official limits.

U.S. light sweet crude (search) settled down 54 cents to $54.49 a barrel on the New York Mercantile Exchange (search), down from a session peak of $55.55 which was the highest level since April 25 and less than $3 from a record. London's Brent crude futures shed 38 cents to $53.79 a barrel.

"Both crude and heating oil futures were overdone here and that caused the market to pull back," said Mark Waggoner, president of Excel Futures in Huntington Beach, Calif.

"There's a lack of news to prop the market higher and there are no refinery problems to push products up," said Darren Dohme, analyst at Powerline Petroleum.

Distillate products, including diesel and gas oil, which had led gains, remained firm. U.S. heating oil gained 1.70 cents a gallon to $1.6165, adding to a nearly 20 percent spike in two weeks.

It built a rare premium to U.S. gasoline futures to nearly 10 cents a gallon, as traders grew more concerned that soaring growth in global demand for distillates could spell a heating fuel crunch in the fourth quarter.

"The first week in June is an odd time for the market to surge on heating oil concerns, but that is what happened," Washington-based PFC Energy said in a briefing note.

Traders said the oil market's trend could remain bullish in the near term, despite Monday's losses.

"A lot of players are now eyeing $60 a barrel... and the market will keep moving in that direction unless the weekly U.S. statistics start showing big builds in gas oil," PFC Energy said.

Last week's U.S. inventory data showed a surprise 700,000-barrel fall in U.S. heating oil stocks, helping to sustain a rally on U.S. sweet crude futures to the highest levels since late April and marking an 18 percent rally from a low of $46.20 touched on May 20.

Supplies of heating oil and other distillates are under pressure from increased demand from U.S. truckers, European motorists and Chinese power generators. Chinese officials have warned of a greater-than-expected summer power shortage, which could lead to higher demand for diesel for use in small generators.

For further guidance on the adequacy of supplies, the market is awaiting the next set of U.S. inventory data to be released on Wednesday.

Analysts expect the report to show another small increase in crude stockpiles, which have already grown to near six-year highs due to strong imports.

The Organization of the Petroleum Exporting Countries has been producing at its highest for 25 years and some OPEC ministers are wary of raising their output ceiling further.

OPEC President Sheikh Ahmad al-Fahd al-Sabah of Kuwait said on Monday the cartel might make a gesture to try to calm the market.

"Prices are too high and we have to do something," Sheikh Ahmad said. "So, maybe we'll increase the ceiling because of the prices."

But other OPEC representatives have spoken out against any output increase.

Algeria's Energy and Mines Minister Chakib Khelil on Monday OPEC members were pumping at full stretch and were likely to keep formal output limits unchanged when they meet on June 15.

"Why should we change our policy? OPEC is producing at full capacity. We cannot produce more," Khelil told reporters.

Saudi Arabia, OPEC's biggest producer, is the only country with any significant spare capacity.

Riyadh has said it is willing to produce as much as its customers want, but that it can do nothing to resolve the refinery bottlenecks that have boosted refined products prices.

U.S. Energy Secretary Sam Bodman said on Monday that the Bush administration would be "very pleased" if OPEC decides to raise its crude oil output ceiling.