Oil prices rose toward $69 a barrel on Tuesday, underpinned by comments by delegates from an OPEC meeting starting Wednesday, which analysts believe may see more rhetoric on compliance but no change in output targets.
The Organization of Petroleum Exporting Countries (OPEC) meets in Vienna on Wednesday, with most analysts expecting the producer group, the source of more than a third of the world's oil supply, to maintain its official output target stable around $70.
The market is looking for reasons to sell oil, and after the OPEC meeting might be a decent excuse. People are worried by under-compliance, the disappointing U.S. driving season, anemic demand and high stock levels, ANZ's senior commodities analyst Mark Pervan said.
That's not a positive scenario for oil and near term, investors will want to take a lighter position. Direction after that will continue to come from equities.
NYMEX crude for October delivery stood at $68.66 a barrel by 0635 GMT, up 64 cents from Friday's close. There was no settlement price on Monday because NYMEX was closed for the U.S. Labor Day holiday.
London Brent crude rose 77 cents to $67.30 a barrel.
Crude prices, although up 50 percent so far this year, are still less than half their peak struck in July 2008, and consumers and producers are happy with that, Saudi Arabia's oil minister Ali al-Naimi said on Tuesday.
Naimi described the oil market as steady and in good shape, although when asked if oil inventories were too high, said Yes, they are a little bit.
But compliance with output targets remains an issue.
A major issue will be compliance. It will be discussed and stressed by many countries with the hope others will comply, a Gulf delegate at the meeting said.
The most likely outcome is that they will keep the ceiling and quota unchanged, he said. It's going to be a smooth and easy meeting.
For graphics on OPEC compliance and output cuts, click:
Oil prices, which fell 6.5 percent last week, have been trading in a range between $65 and $75 a barrel since the start of August, with prices swinging on economic data as investors seek clues about the speed of a recovery from the recession.
Investors will be on watch for inventory data -- delayed by a day this week due to Monday's holiday.
The American Petroleum Institute's petroleum stocks report will be delayed one day to Wednesday, September 9, at 4:30 p.m. EDT and Energy Information Administration snapshot of crude oil, distillates and gasoline stocks will be pushed out to Thursday, September 10, at 11 a.m. EDT.
The big thing is distillate stocks, which are quite high, National Australia Bank's commodities economist Ben Westmore said.
People are assessing economic indicators -- industrial production and so on to see if the supply overhang will be redressed any time soon.
Traders will also keep an eye out as Tropical Storm Fred formed in the eastern Atlantic Ocean on Monday with top winds of 40 mph, but did not immediately threaten any land, the U.S. National Hurricane Center said.
(Editing by Ben Tan)