BLBG: Crude Oil Rises as Slump Strengthens OPEC Resolve to Cut Output
By Alexander Kwiatkowski and Christian Schmollinger
Dec. 5 (Bloomberg) -- Crude oil rose from a four-year low on speculation that prices of less than $45 a barrel will strengthen OPEC’s resolve to cut production.
Oil has fallen 19 percent this week since the U.S. was declared to be in a recession, and is heading for its biggest weekly drop since March 2003. Ministers from the Organization of Petroleum Countries have said the group will cut production when it meets in Algeria on Dec. 17 to stem the slump.
“In their next step OPEC will try to surprise us with bigger cuts,” said Gerrit Zambo, an oil trader at BayernLB in Munich. “Revenues are declining rapidly for the oil producers. If they don’t plan to cut production more perhaps we will go down even further from here.”
Energy, wheat and copper led a plunge in commodities yesterday as the Standard & Poor’s GSCI raw materials index fell to the lowest since February 2005. A report today will probably show U.S. November payrolls dropped the most since the 2001 terrorist attacks.
Crude oil for January delivery rose as much as 76 cents, or 1.7 percent, to $44.43 a barrel on the New York Mercantile Exchange. It traded at $44.22 at 11:04 a.m. in London. Yesterday, futures tumbled $3.12, or 6.7 percent, to $43.67 a barrel, the lowest settlement price since Jan. 5, 2005.
Oil prices have fallen 70 percent since reaching a record $147.27 a barrel on July 11. Crude’s weekly drop is the largest since a 24 percent decline during the week ending March 21, 2003.
U.S. Recession
The U.S. entered a recession in December 2007, the National Bureau of Economic Research, a private non-profit panel of economists that dates American business cycles, said Dec. 1. U.S. equity markets declined yesterday as oil stocks dropped on forecasts of $25-a-barrel crude from analysts at Merrill Lynch.
“All the weak economic data is really disturbing the oil market,” said Sintje Diek, an HSH Nordbank analyst in Hamburg. “If the labor market is weaker again, we will see lower consumption by consumers.”
U.S. fuel demand during the four weeks ended Nov. 28 was down 6.2 percent from a year earlier, an Energy Department
The economies of the U.S., Japan and Europe are all in recession for the first time since World War II. The European Central Bank yesterday cut its benchmark interest rate by the most in its 10-year history to stem the collapse. The Bank of England and Sweden’s central bank followed with reductions.
OPEC Cut ‘Definite’
Brent crude oil for January settlement climbed as much as 83 cents, or 2 percent, to $43.11 a barrel on London’s ICE Futures Europe exchange. It traded at $42.84 at 11:06 a.m. local time. The contract yesterday fell $3.16, or 7 percent, to $42.28, the lowest settlement since Jan. 5, 2005.
Qatar’s oil minister said on Dec. 3 that the Organization of Petroleum Exporting Countries will “definitely” cut output at its next meeting in Algeria on Dec. 17.
“I am sure we will see a cut in December,” said Diek of HSH Nordbank. “The cuts in oil production should stabilize prices.”
OPEC oil ministers agreed on Oct. 24 in Vienna that the 11 members with quotas would lower supply by 1.5 million barrels a day starting in November. Production by the 11, excluding Iraq and Indonesia, declined 725,000 barrels to 28.24 million barrels a day last month, according to data compiled by Bloomberg News.
To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net
