BLBG; Oil Rises a Second Day on Speculation OPEC Will Prevent Glut
By Gavin Evans and Christian Schmollinger
Nov. 24 (Bloomberg) -- Crude oil rose for a second day in New York on speculation further production cuts by the Organization of Petroleum Exporting Countries will prevent a glut in supplies.
Slowing global demand has left a 1 million barrel-a-day oversupply that needs to be removed by year-end, Venezuela’s Oil Minister Rafael Ramirez said yesterday. Prices below $50 a barrel risk stalling new developments by smaller oil companies, Total SA Chief Executive Officer Christophe de Margerie said.
“The market now sees that OPEC is more likely to cut production,” said Clarence Chu, a trader with options dealer Hudson Capital Energy in Singapore. “To be effective, it must be a 1.5 million barrel-a-day cut or more. Even 1 million won’t be enough because the sentiment has been so bearish.”
Crude oil for January delivery rose as much as $1.41, or 2.8 percent, to $51.34 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $50.65 a barrel at 12:18 p.m. in Singapore. Prices are down 66 percent from the record $147.27 a barrel on July 11.
Oil gained 1 percent to $49.93 a barrel on Nov. 21, the first increase in six days, as a report forecast a 3.8 percent decline in OPEC shipments this month and the Standard & Poor’s 500 Index climbed from an 11-year low. Oil traded at a three-year low of $48.25 earlier that session.
OPEC “have got to be pretty careful how they attempt to manipulate this,” Mark Pervan, senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne, said in a Bloomberg Television interview. “There’s some expectation they’ll cut production further, but they’re likely to look to the new year before assessing it again.”
Recession, OPEC
Brent crude oil for January settlement rose as much as 81 cents, or 1.7 percent, to $50 a barrel on London’s ICE Futures Europe exchange today. It was at $49.85 a barrel at 12:13 p.m. in Singapore. The contract gained 2.3 percent to $49.19 on Nov. 21.
OPEC “needs higher prices, so they will intervene,” said Total’s de Margerie during an interview on RTL radio and LCI television today. He called an oil price below $50 a “danger” as it will curtail investment in new oil fields.
New York oil futures have fallen as the U.S., Japan and much of Europe slipped into recession, equity prices slumped and a rising U.S. currency reduced the appeal of dollar-priced commodities.
Heads of state from the 21-nation Asia-Pacific Economic Cooperation group, including the U.S., China and Japan, promised to act “quickly and decisively” to resolve the global economic crisis, without offering specific steps. The leaders issued their comments following a two-day summit in Lima.
Double Whammy
Oil ministers from the 13-nation OPEC group meet in Cairo on Nov. 29. Venezuela, OPEC’s fifth-largest producer, will be seeking a 1 million barrel-a-day cut and assurance that the 1.5 million barrel reduction agreed on Oct. 24 is being implemented, Ramirez said.
OPEC’s “not having a lot of leverage on prices,” ANZ’s Pervan said. “The large cutbacks we’ve seen in the last month or two really haven’t impacted positively on prices. And I think they’re concerned that as they cut production and prices fall, they’re getting a double whammy on revenue.”
Oil inventories in the U.S., the world’s largest consumer, are at their highest in six months after rising for eight straight weeks, according to Energy Department data. Reports tomorrow will probably show the world’s largest economy contracted more than earlier forecast in the third quarter.
Of all commodities, oil is the most exposed to the U.S. economy, which is the “epicenter” of the global slowdown now under way, Pervan said. Prices may drop below $40 a barrel in the first quarter as the contraction continues, he said.
“As far as we can see, demand conditions are likely to get weaker before they get stronger in oil over the next six months,” he said.
To contact the reporters on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net.
