BLBG: Crude Oil Rises a Third Day as OPEC Is Poised to Cut Production
By Nesa Subrahmaniyan
Oct. 21 (Bloomberg) -- Crude oil rose for a third day in New York as OPEC is poised to cut output for the first time in almost two years and the U.S. government is considering further steps to boost the economy.
OPEC, supplier of about 40 percent of the world's oil, may decide to lower production as much as 2 million barrels a day at a meeting on Oct. 24, said Chakib Khelil, the group's president. Stock markets rallied as the U.S., the world's largest energy user, is open to taking more measures to improve access to credit for businesses and consumers.
``All eyes and ears are on OPEC and the market is pricing in a production cut which is anybody's guess at between 500,000 barrels to 3 million barrels a day,'' said Victor Shum, senior principal at energy consultant Purvin & Gertz Inc. in Singapore. ``Further measures to ease the credit crunch will help financial markets, and oil is tracking that.''
Crude oil for November delivery gained as much as $1.44, or 1.9 percent, to $75.69 a barrel in electronic trading on the New York Mercantile Exchange, and traded at $74.74 at 12:25 p.m. Singapore time. Futures are set for the biggest three-day gain in a month.
Oil has fallen 49 percent from a record $147.27 a barrel in July after global demand declined as a financial crisis in the U.S., the world's biggest energy consumer, spread and banks tighten lending, tipping the world economy close to a recession.
Stocks Gain
U.S. stocks rose yesterday, adding to the Dow Jones Industrial Average's best weekly gain in five years, after Halliburton Co.'s profit topped estimates and Federal Reserve Chairman Ben S. Bernanke endorsed a second economic stimulus package.
``Fed Chairman Bernanke's support of a second fiscal stimulus package affected market sentiment positively'' and was also supportive for energy prices, Credit Suisse Group AG said in a research note today.
The Organization of Petroleum Exporting Countries brought forward to this week 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, Khelil, who is also Algeria's oil minister, said in an interview on Algerian television.
OPEC Production
``There should be more than 1 million,'' Shokri Ghanem, chairman of Libya's National Oil Corp., said in a telephone interview yesterday. ``I can't say how much -- we will leave it to discussion.''
Qatari Oil Minister Abdullah bin Hamad al-Attiyah told Al Jazeera TV the cut will probably be 1 million barrels a day. Saudi Arabia, which dominates OPEC proceedings as the group's largest producer, has yet to comment on its intentions.
OPEC's 13 members produced 32.2 million barrels a day in September, according to a Bloomberg News survey of analysts and producers.
Brent crude oil for December settlement rose as much as $1.26, or 1.8 percent, to $73.29 a barrel on London's ICE Futures Europe exchange, and traded at $72.30 at 12:26 p.m. Singapore time. Yesterday, the contract gained $2.43, or 3.5 percent, to settle at $72.03 a barrel.
Oil Options
Oil options trading shows the probability that crude will fall below $50 a barrel by June has more than doubled in 10 days, Deutsche Bank AG said.
There is a 9 percent likelihood that June 2009 crude oil contracts will expire below $50, Deutsche said in an Oct. 17 report, up from 4 percent 10 days earlier. The potential for December 2008 contracts settling below $50 tripled to 3 percent in the same period.
A production cut by OPEC may prolong an economic slowdown, according to the International Energy Agency's Executive Director Nobuo Tanaka.
``If some substantial cut takes place it will have an impact on price,'' Tanaka told reporters yesterday at the agency's headquarters in Paris. ``We have concern it will have negative impact on world economic recovery. The slowdown may be prolonged.''
There's no evidence of a drop in oil demand from countries outside the Organization for Economic Cooperation and Development, such as India and China, he said.
``We hope OPEC takes all these elements into consideration'' when it meets on Oct. 24 in Vienna, he said.
To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net
