SIOUX FALLS, S.D. (AP) — Oil prices rebounded from four-year lows and shot above $43 a barrel Monday as OPEC floated the possibility of a "severe" production cut and several countries announced new measures to boost their economies.
Chakib Khelil, president of the Organization of Petroleum Exporting Countries, said Saturday that the cartel could announce a "severe" reduction of output quotas at its next meeting on Dec. 17 in Algeria.
"Obviously when OPEC talks like this they always give the market a boost, but the question is how sustainable it's going to be," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. "OPEC can talk the talk but they have a hard time walking the walk."
Light, sweet crude for January delivery gained $2.82 to $43.63 a barrel on the New York Mercantile Exchange. On Friday, the contract dropped nearly $3 to settle at $40.81 and prices fell as low as $40.50, levels last seen in December 2004.
Khelil would not specify how deep the output cut would be, but noted that some analysts are predicting a decrease of as much as 2 million barrels per day.
An output decision that startles markets would help bolster plunging oil prices, Khelil said in an interview with The Associated Press.
"The best way is to surprise them," he said. "I hope it will."
David Moore, a commodity strategist with Commonwealth Bank of Australia in Sydney, predicted that OPEC will cut production by at least 1 million barrels a day.
"The possibility of OPEC moving to tighten up the oil market is real," Moore said. "As we get closer to the meeting, people may get more wary that OPEC may make a large cut."
OPEC announced a production cut of 1.5 million barrels a day in October and investors largely ignored it, focusing instead on a global economic slowdown that has weakened crude demand.
Oil prices were also buoyed by gains in the equity markets.
The Dow Jones industrial average gained more than 200 points Monday after President-elect Barack Obama announced over the weekend plans for the largest U.S. public works spending program in 50 years. The effort is designed to boost the crippled U.S. economy by putting thousands of people to work building schools and other construction projects.
European and Asian stock markets surged on reports that China will look at new steps to expand its $586 billion stimulus package and India plans to spend an additional $4 billion and take other steps to boost its economy.
The price of oil has fallen about 70 percent since peaking at $147.27 in July.
Nobuo Tanaka, executive director of the International Energy Agency, said he expects only slight growth in oil demand in 2009 if current economic conditions continue.
But a total global decline remains a possibility if a slump hits the economies of China, India or the Middle East, Tanaka said Monday at United Nations climate talks in Poland.
The agency recently slashed its global oil demand forecasts for the period to 2013, saying the world oil market had been shaken by high prices earlier this year followed by the global economic slowdown.
The national average for regular gas fell nearly 2 cents overnight to $1.716 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. That is nearly 60 cents a gallon below what it was a month ago and nearly $2.40 below where it was in July when prices peaked at $4.11 per gallon.
In other Nymex trading, natural gas for January delivery slid 3.4 cents to 5.109 per 1,000 cubic feet on news that Dow Chemical Co. would close 20 plants and temporarily idle another 180 facilities to reign in costs amid the economic recession.
"If you've got Dow Chemical shutting all these plants, it's definitely going to play into the bearish psychology of the market here a little bit," Flynn said.
Gasoline futures rose 6.55 cents to 96.67 cents. Heating oil gained 7.4 cents to $1.50 a gallon.
In London, January Brent crude jumped $3.49 to $43.23.
