NEW YORK - Crude oil had its biggest two-day drop since March 2003 as the Organization of the Petroleum Exporting Countries promised yesterday to increase global oil supplies in an effort to prevent high prices from curbing economic growth.
Gasoline futures also plummeted as OPEC pledged to boost oil quotas by 2 million barrels a day with a possible increase of 500,000 barrels in August. The move signals that U.S. refiners will have adequate supplies to process into gasoline to meet demand during the summer driving season.
"The latest OPEC decision is enough to shift the market perception to the belief that there's a lot of crude oil coming this way," said John Gretzinger, an oil analyst for F.C. Stone LLC in Kansas City, Mo. "The price action in the past two days illustrates that."
Crude oil for July delivery fell 68 cents, or 1.7 percent, to settle at $39.28 a barrel on the New York Mercantile Exchange, the lowest since May 10. Futures were 28 percent higher than a year ago.
Prices have fallen 7.2 percent in two days, the biggest decline for that period since U.S. forces invaded Iraq.
The July gasoline contract plummeted 4.69 cents, or 3.7 percent, to settle at $1.2354 a gallon on the Nymex, the lowest since April 28. Futures were up 39 percent over the past year. Prices have tumbled 14 percent since Friday.
On Wednesday, oil prices fell the most in six months, based on statements from some OPEC members that the group would pump as much oil as possible to lower prices.
Saudi Arabia, which holds the bulk of OPEC's additional capacity, and the United Arab Emirates plan to produce an additional 1.1 million barrels a day. Saudi Oil Minister Ali al-Naimi said the kingdom plans to pump 9.1 million barrels daily this month.
The cartel, the source of more than one-third of the world's oil, agreed at a meeting in Beirut to increase quotas by 8.5 percent to a new limit of 25.5 million barrels a day starting July 1, the biggest increase in more than six years.
Already pumping more
"This decision is disappointing because 2 million barrels a day doesn't even cover what OPEC is actually pumping now," said Chris McCormack, a broker with ABN Amro Inc. in New York.
As OPEC members are already producing above their limits, the increase in quotas may add only 800,000 to 1 million barrels a day of crude oil to the world market, said Kuwait's minister, Sheik Ahmad Fahd al-Ahmad al-Sabah.
Daily production from OPEC's 10 members with quotas, excluding Iraq, averaged 26.51 million barrels in May, exceeding the group's limit by 3.01 million, or 13 percent, according to Bloomberg estimates.
In London yesterday, the July Brent crude oil futures contract fell 46 cents, or 1.3 percent, to $36.40 a barrel on the International Petroleum Exchange. Prices were 33 percent higher than a year ago.
Increased supply from OPEC "will give U.S. refiners a chance to build up some inventories that we'll need," said Phil Flynn, senior energy trader for Alaron Trading Corp. in Chicago.
U.S. crude oil supplies increased by a larger-than-expected 2.8 million barrels to 301.7 million in the week ended May 28, the Energy Department said. Reserves were at the highest since August 2002 and remain 4.2 percent below the five-year average.
Oil imports rose 2 percent to 10.7 million barrels a day, the highest since September when shipments reached a record.