BLBG: Crude Oil Rises a Second Day as OPEC Prepares to Cut Production
By Grant Smith
Oct. 20 (Bloomberg) -- Crude oil rose for a second day on speculation OPEC will cut production to halt a 50 percent slide in prices from July's record.
OPEC, supplier of about 40 percent of the world's oil, may pare output by 1 to 2 million barrels a day in stages to stabilize prices, said Chakib Khelil, the group's president. Deutsche Bank AG lowered its 2009 crude oil price estimate by 35 percent to $60 a barrel, citing the possibility of a ``major world recession.''
``OPEC are going to step in and try to protect their price,'' Robert Laughlin, senior broker at MF Global Ltd. in London, said in a television interview. ``They have to do a million; anything less and it might backfire against them.''
Crude oil for November delivery gained as much as $2.43, or 3.4 percent, to $74.28 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $73.83 at 12:56 p.m. in London.
Oil dropped to a 14-month low of $68.57 a barrel on Oct. 16. Options contracts to sell oil at $50 by December soared 50- fold in the past two weeks on the New York Mercantile Exchange.
Contracts that allow holders to sell 1,000 barrels of oil for $50 each by December closed at $280 on the Nymex on Oct. 17, up from $10 on Oct. 3.
China's economy grew 9 percent in the third quarter, the slowest pace in five years, underscoring concern that the spreading financial crisis threatens the biggest contributor to global growth.
`Significant Cut'
The Organization of Petroleum Exporting Countries brought forward to Oct. 24 a Vienna meeting planned for November to discuss output levels.
While there's a consensus among the group's members to cut output, there's no agreement on the size of the reduction, OPEC president Khelil said in an interview on Algerian television yesterday.
Goldman Sachs Group Inc. and Merrill Lynch & Co. said a 1 million barrel cut is possible.
Oil may fall below $60 a barrel if OPEC limits the cut to 1 million barrels a day, Goldman analysts said in a report dated Oct. 17. Merrill Lynch & Co. analysts led by Francisco Blanch in London said OPEC may trim supplies by 2.4 million barrels a day over 12 months if economic conditions deteriorate.
``A one to two million barrel cutback is quite likely,'' Tom James, an independent commodity trading adviser, said in a Bloomberg Television interview. ``It's important we do hold around $60 to $70. If we see $50 or below for many, many months, this is going to hurt investment in the industry.''
OPEC's 13 members produced 32.2 million barrels a day in September, according to a survey of analysts and producers.
Brent crude oil for December settlement rose as much as $2.30, or 3.3 percent, to $71.90 a barrel on London's ICE Futures Europe exchange, and traded at $71.44 at 12:59 p.m. London time.
To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net
