Saudi Arabia said Sunday it would produce more crude oil this year if the market needs it. The kingdom announced a 300,000 barrel per day production increase in May and said before the start of the meeting in Jeddah that it would add another 200,000 barrels per day in July, raising total daily output to 9.7 million barrels.
Any hopes that the weekend summit in Saudi Arabia would put the brakes on runaway oil prices were dashed when the Saudis announced the lower-than-expected increase, with a vague promise of more down the road when demand warranted, CBS News Correspondent Priya David reported.
The announcement had already been factored into oil prices, analysts said.
"The meeting was mildly positive but it wouldn't really deliver anything that would give a heavy correction in oil," said Mark Pervan, a senior commodity strategist at the ANZ Bank in Melbourne, Australia. "They pledged production increases that the market thought was base case."
Light, sweet crude for August delivery traded up $1.26 at $136.62 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe. On Friday, the contract rose $2.76 to settle at $135.36 a barrel.
Ray Carbone, a senior oil trader with Paramount Options, Inc., told CBS' The Early Show on Monday that the Saudi's promise was simply "too little, too late."
Carbone told The Early Show that Saui Arabia could have pledged twice as much oil to the market, and it still would not have made a difference.
"It's the kind of oil, not really the quantity of oil that's in question here," Carbone said, citing the need for more high-quality, easy to refine crude. That is not the oil produced by Saudi Arabia, but by nations such as Nigeria, where civil unrest has markets jittery.
Carbone added that "we may test the high spending" this week, predicting the price of a barrel of crude could reach the 140 dollar mark.
Saudi Arabia's pledge fell far short of U.S. hopes for a specific increase. The United States and other nations argue that oil production has not kept up with increasing demand, especially from China, India and the Middle East. But Saudi Arabia and other OPEC countries say there is no shortage of oil and instead blame financial speculation and the falling U.S. dollar.
Analysts said the meeting helped provide some clarity as to the size of spare OPEC capacity available. Saudi Arabia said it is willing to invest to boost its spare oil production capacity above the current 12.5 million barrels per day planned for the end of 2009 - if the market requires it.
"I think where the market may be a little more comforted, which could see prices drift lower in the medium term, is more clarity and scope on OPEC capacity," Pervan said.
Total worldwide crude production is about 85 million barrels per day, but analysts say supplies remain tight amid disruptions to production from Nigeria, Africa's largest producer.
"The oil summit really has not done much to temper oil pricing," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "It was a modest output increase and hardly really compensates for the disruption out of Nigeria."
With expectations fading that the Saudi moves would drive the market downward, analysts suggested present high levels were here to stay, at least for the short term.
"Bubble or not, one thing is for sure, while the market has not gained any ground since that historic $16.10 rally back on June 05th/06th, it has not yielded any ground either," wrote trader and analyst Stephen Schork, in his Schork Report. "Thus, it is clear that the market is certainly comfortable with crude oil up around these levels."
Royal Dutch Shell PLC said Friday that it cannot meet contractual obligations to export oil from a Nigerian oil field following a militant attack Thursday.
However, the head of Nigeria's white-collar oil-workers union denied reports of a strike targeting Chevron Corp.'s Nigerian operations. While negotiations with the company over staffing levels were deadlocked, there was no workers' action on Monday, said Bayo Olowoshile, the head of the union known as Pengassan.
"As of now, work is going on and production has not been affected," Olowoshile told the Associated Press.
Strikes by white-collar workers infrequently immediately impact companies' oil production, which is largely automated in Nigeria.
Nigerian oil workers also reportedly decided to strike at a Chevron Corp. facility beginning Monday.
But oil prices might find some relief from Sunday's announcement by Nigeria's main militant group that it would halt attacks starting at midnight Tuesday. The Movement for the Emancipation of the Niger Delta declared a unilateral cease-fire, saying elders in the restive southern region had asked the fighters to allow peace efforts to go ahead.
The group's attacks have sliced about one quarter from Nigeria's normal oil daily oil output, helping buoy crude prices in international markets.
"The market will see if indeed that cease-fire holds for a bit of time," Shum said.
Also supporting oil prices were worries about heightened tensions between Israel and Iran, after Pentagon officials said Friday a large-scale Israeli military exercise in the eastern Mediterranean early this month could have been a demonstration of Jerusalem's ability to attack Iranian nuclear facilities.
In other Nymex trading, heating oil futures added nearly 5 cents to $3.8203 a gallon while gasoline prices by almost 3 pennies to $3.4580 a gallon. Natural gas futures rose 21 cents to $13.204 per 1,000 cubic feet.
Brent crude oil futures rose $1.29 to $136.15 a barrel on the ICE Futures exchange in London.