Oil fell in New York, erasing earlier gains, amid speculation OPEC will increase production quotas when it meets in Vienna even as U.S. gasoline demand weakens. Futures dropped as much as 0.7 percent. The Organization of Petroleum Exporting Countries will raise its output target today, according to a Gulf delegate with knowledge of the matter. U.S. gasoline demand at the pump slid 2.9 percent last week as Americans returned to work after the Memorial Day holiday weekend, according to a MasterCard Inc. SpendingPulse report. The U.S. increased its forecast for global oil consumption for this year while cutting its price estimate. “OPEC is the big key,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney, who predicted crude will average $100 this year. “The U.S. is saying that demand is going to increase but clearly the economic data doesn’t suggest that.” Crude for July delivery dropped as much as 64 cents to $98.45 a barrel in electronic trading on the New York Mercantile Exchange and was at $98.68 at 2:59 p.m. Sydney time. The contract earlier advanced as much as 70 cents to $99.79. Prices are 37 percent higher the past year. Brent crude for July delivery fell 63 cents, or 0.5 percent, to $116.15 a barrel on the London-based ICE Futures Europe exchange. The contract yesterday gained $2.30, or 2 percent, to $116.78. Prices are up 60 percent the past year. OPEC Quotas The European benchmark contract traded at a premium of $17.46 a barrel to U.S. futures today. The difference between front-month contracts in London and New York reached a record $19.54 on Feb. 21. It averaged 76 cents last year. OPEC will raise its production quota for the first time since 2008 to help replace lost Libyan supplies and meet growth in demand later this year, a Gulf delegate said. The group is producing 2 million barrels a day above its official ceiling, the delegate said, declining to be named because he isn’t authorized to speak publicly. An increase in the output targets would help replace missing supplies from Libya and meet demand- growth projections for later this year. “Psychologically, any quota move will be bearish for the market in the short term,” said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “There is a sense that the U.S. gasoline market isn’t going to save us.” Spare Capacity Production quotas will likely increase by 1.5 million barrels a day, analysts from Societe Generale SA and Morgan Stanley said in reports yesterday. That would be about a quarter of the group’s spare capacity, based on Bloomberg estimates. OPEC had 5.94 million barrels a day in spare capacity in May, down 2.7 percent from April, based on Bloomberg estimates. Spare capacity was 6.31 million barrels a day in March, the highest level since May 2009. U.S. motorists bought an average 9.19 million barrels a day of gasoline in the week ended June 3, down from 9.46 million the previous week, according to the MasterCard report. Averaged over four weeks, gasoline use was 1.3 percent below the same period in 2010, the 11th consecutive decline. Oil prices rose earlier after the industry-funded American Petroleum Institute said crude stockpiles fell by 5.5 million barrels to 366.1 million, the biggest decline since December. Gasoline supplies slid 390,000 barrels to 212.3 million, the report said. U.S. Imports Drop Crude imports dropped 11.9 percent, the third-biggest decline this year. Starting May 29, the 591,000-barrel a day Keystone pipeline, operated by TransCanada Corp., was shut because of a leak at a pump station. The system extends from Alberta to the Nymex delivery point at Cushing, Oklahoma. Stockpiles at the Petroleum Administration for Defense District 2, which includes the Midwest states of Illinois and Oklahoma, fell by 2.6 million barrels last week, the largest decline since October. Cushing supplies slid 1.5 million barrels to the lowest since Feb. 25. An Energy Department report today may show crude inventories slipped by 1.38 million barrels while gasoline stockpiles increased by 1.05 million, according to a Bloomberg News survey of analysts. Oil-supply totals from the American Petroleum Institute and DOE have moved in the same direction 72 percent of the time over the past year. The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey. The U.S. Energy Department raised its forecast for global oil consumption for this year to 88.43 million barrels a day from 88.08 million in May, according to its monthly Short-Term Energy Outlook, released yesterday. It cut its price forecast to an average $101.91 for 2011 from $102.67 last month. To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net

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