OPEC Offers a Small Production Increase

Oil and gasoline futures fell after OPEC said it would boost oil production quotas by 500,000 barrels per day.

The market's tepid reaction was due to the fact that investors already priced in the increase, analysts said. Many investors hoped for a larger production boost.

"I don't think a quota increase immediately changes anybody's minds about where the price belongs," said Tim Evans, an analyst at Citigroup Inc.

Light, sweet crude for October delivery fell 40 cents to $77.09 a barrel on the New York Mercantile Exchange after advancing above $78 earlier, and October gasoline fell 3.5 cents to $1.9436 a gallon.

In other Nymex trading, heating oil futures fell 0.98 cent to $2.1618 a gallon and natural gas futures added 2.5 cents at $5.916 per 1,000 cubic feet.

Energy Dept. Sees Higher Heating Costs This Winter

The Energy Department's monthly Short-Term Energy Outlook forecasts heating oil prices will average $2.78 per gallon from October through March of next year. That compares with an average price of $2.48 a gallon in the same period the year before. "Higher crude oil prices and projections of lower distillate inventories than last year going into the heating season, contribute to the projected increase," the report said.

The Outlook also sees spot natural gas prices climbing to a peak of $9.01 per thousand cubic feet by January. Assuming more or less normal winter weather, total natural gas consumption is forecast to rise only 0.3 percent in 2008.

Gasoline prices are expected to continue to decline through the end of the year, despite low inventories, with an average retail price of $2.63 a gallon for regular gas by December.

Tight world oil markets should keep the price of oil around $71 per barrel through 2008, according to the Energy Department.

NRC Approves TXU Takeover

TXU Corp.'s $32 billion private buyout deal cleared its final regulatory hurdle with approval from the Nuclear Regulatory Commission.

Investors led by Kohlberg Kravis Roberts & Co. and TPG, formerly Texas Pacific Group, expect to close the deal in the fourth quarter. TXU shareholders approved it Friday.

The major obstacle remaining is the completion of a financing package from major Wall Street banks.

KKR and TPG, which arranged their financing at the height of the buyout binge earlier this year, have declined to comment on financing. TXU Chief Executive C. John Wilder told The Associated Press on Friday that he had no indications the investors were having any problems completing their financing.

The NRC approval was required to transfer operation of a TXU reactor to the new owners.

Morgan Stanley Upbeat on Utilities

Morgan Stanley thinks now may be the time for investors to pick up shares of some major utility companies.

"Our outlook for electric utilities remains strong despite the recent weakness in the sector," analyst Vikas Dwivedi said in a note to investors. "In our view, long-term fundamental drivers appear discounted, such as a tightening supply-demand balance for power generation, high long-term gas prices (our new long-term gas price estimate is $8 per mmbtu) and potential share repurchases. We expect companies to provide investors with stock specific updates and focus on the key long-term fundamental drivers over the next two to three months.

Dwivedi notes that merchant generators and diversified utilities generally underperformed regulated utilities last week, although both groups lost ground.

"We recommend investors use downside volatility as entry points into quality names such as American Electric Power, Entergy, Exelon and Public Service Enterprise Group," the analyst said.

Pollution Concerns About BP Gas Project

Two U.S. senators met with executives of BP PLC, urging them not to drill for natural gas on the Canadian side of the Flathead River basin because polluted water could flow into Montana.

Senators Max Baucus and Jon Tester, both Montana Democrats, met separately with a group of executives from the company that included BP America President Bob Malone and BP Canada President Randy McLeod.

BP plans to seek a permit next year in southern British Columbia to drill up to six exploratory wells in a region on the Montana border. The company hopes to extract coal-bed methane from the Crowsnest Coal Field, a 190-square mile area that includes rivers draining into the U.S.

The two senators said the development could put at risk waters flowing into Glacier National Park and other parts of northwest Montana. Large amounts of water are discharged during coal-bed methane extraction.

--Compiled by AP Business Writer Greg Stec. Questions or comments can be directed to gstec@ap.org.