Light, sweet crude for July delivery rose 76 cents to $135.62 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe. It fell $1.88 to settle at $134.86 on Friday.
Saudi Arabia, the world's largest oil producer, told U.N. chief Ban Ki-moon over the weekend that it would boost output by 200,000 barrels a day, or by 2 percent, from June to July. In May, the kingdom raised production by 300,000 barrels a day. That appeared to be largely ignored by traders amid sustained global demand.
However, traders believe that there is growing concern within the Organization of Petroleum Exporting Countries that high prices will suppress the global appetite for oil, and that the organization may take action to stabilize the market.
"This is not a one-way story now. The industry is becoming more jittery and beginning to respond. Saudi, and OPEC generally, fear permanent demand erosion at these price levels," said Mark Pervan, senior commodity strategist at Australia and New Zealand Bank in Melbourne, Australia.
Traders will be watching for outcome of a July 22 meeting of oil producing and consuming nations in Jeddah, called by Saudi.
"As we look ahead to this week, all eyes will be on Sundays 'oil price summit' in Jeddah," said analyst and trader Stephen Schork, in his Schork Report. "If the Saudis do not succeed in popping the balloon here, then off to $150 we go."
Crude prices have reached record highs, surpassing $139 per barrel on June 6 after surging nearly $11 in the biggest single-day price leap ever. The price of a barrel has swung back and forth by about $10 since then.
In its monthly market report, OPEC said market volatility reconfirmed the view that "current price levels do not reflect supply and demand realities."
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The cartel cut its 2008 global demand forecast, saying it now expects demand to increase by 1.28 percent to an average of 86.9 million barrels daily, down from a previous forecast of 1.35 percent.
That downward revision follows similar moves by the U.S. Energy Department and the International Energy Agency earlier in the week.
Phil Flynn, an analyst at Alaron Trading Corp. in Chicago, said the revised forecasts suggest global demand for oil is slowing. That trend could accelerate, he added, if prices don't come down soon.
"It's a sign that maybe the bull run could come to an end. You don't want to say that for sure, but you're starting to see some shifts," Flynn said.
In other Nymex trading, July heating oil futures added 3.5 cents to $3.8719 a gallon, and July natural gas futures rose by more than 2 pennies to $12.647 per 1,000 cubic feet. Gasoline futures were up marginally at $3.4695.
In London, July Brent crude lost 66 cents to $134.45 on the ICE Futures exchange.
[Associated Press; By GEORGE JAHN]
Associated Press writer Eileen Ng contributed to this report from Kuala Lumpur, Malaysia.
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