Oil drops below $99 ahead of OPEC meeting

Oil prices fell below $99 a barrel on Tuesday in Asia amid expectations that OPEC will raise its production quota this week.

Benchmark crude for July delivery was down 51 cents to $98.50 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract lost $1.21 to settle at $99.01 on Monday.

Brent crude was down 46 cents to $114.02 on the ICE futures exchange in London.

Analysts are looking for clues on what the Organization of Petroleum Exporting Countries will do about oil production when the cartel meets Wednesday in Vienna.

OPEC ministers could decide to try to push oil prices lower by increasing production. OPEC officials have said that they believe oil prices are too high and threaten global economic recovery.

Capital Economics said traders are speculating that OPEC will increase its output ceiling by as much as 1.5 million barrels per day. That would be the first increase since September 2007, but oil prices are likely to fall regardless of OPEC’s decision, it said.

The cartel’s current production is already close to 1.5 million barrels above the daily production ceiling so any increase of that magnitude would be largely symbolic, Capital Economics said.

“The bigger picture is that oil prices are likely to decline anyway as demand continues to disappoint and the Middle East risk premium fades,” it said.

Also on the radar is the U.S. Energy Department’s release Tuesday of its monthly short-term energy outlook and weekly petroleum inventories report on Wednesday. The recent trend has been for rising supplies and falling demand.

In other Nymex trading in July contracts, heating oil fell 1.2 cents to $3 per gallon and gasoline dropped 1.4 cents to $2.94 a gallon. Natural gas was off 1.4 cents at $4.81 per 1,000 cubic feet.