By Mark Shenk Dec. 11 (Bloomberg) -- Crude oil jumped for a second day, rallying 8.8 percent, after the Saudi Arabian oil minister said he had delivered the output cuts promised to OPEC, a sign that world supplies are smaller than traders had estimated. Ali al-Naimi, the Saudi minister, said in an interview in Poznan, Poland, that the kingdom pumped 8.493 million barrels of oil a day in November, close to its OPEC production quota of 8.477 million barrels a day. He declined to comment further on OPEC policy. That’s 287,000 barrels a day less than estimated by the International Energy Agency. “It’s quite unusual for the Saudis to make this kind of statement, and it should give confidence that they are following through with the cuts,” said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $5 billion energy-company bond portfolio. “This may encourage others to behave similarly to end the free-fall in prices.” Crude oil for January delivery rose $3.81 to $47.33 a barrel at 11:11 a.m. on the New York Mercantile Exchange. Prices, which are up 16 percent this week, are heading for the biggest one-week gain since June 1998, when OPEC agreed to slash output by more than 3.1 million barrels. Saudi Arabia’s oil output was “absolutely” in line with its OPEC quota, al-Naimi said today in an interview in Poznan, where he is attending climate-protection talks. “The Saudis might have been impatient with the market’s skepticism, so they’ve decided some transparency is needed,” said Mike Wittner, head of oil market research at Societe Generale SA in London. “It shows they’re deadly serious about cutting already and serious about cutting more.” Further Reduction OPEC’s previous oil-supply cuts aren’t enough, and the group will need to make a “substantial” reduction at its next meeting, on Dec. 17, in Oran, Algeria, Shokri Ghanem, Libya’s top oil official, said in a Bloomberg TV interview today. “The Oran meeting will decide a severe production cut to stabilize the oil market,” OPEC President Chakib Khelil, who is also Algeria’s oil minister, said in an interview on state radio today. “There is a consensus to reduce production.” Oil has tumbled 26 percent since the Organization of Petroleum Exporting Countries, which supplies about 40 percent of the world’s oil, announced a 1.5 million-barrel-a-day output cut on Oct. 24 in Vienna. Prices fell as fuel demand slumped and speculation grew that some members weren’t complying with their agreed-on quotas. “Naimi is making it clear to the world that they are cutting,” said Sarah Emerson, managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Massachusetts. “The OPEC heavyweights are all serious about getting prices higher so they will make the cuts.” Futures, which have dropped 53 percent this year, are heading for the biggest annual decline since trading began in 1983, as global economies falter. Contango Oil for delivery in December 2009 traded at an $11.48 premium to January futures, down from a $14.27 premium on Dec. 8. The shrinking spread may indicate that storage space for oil is scarce and that the crude is being sold on the spot market. This price structure, when the subsequent month’s price is higher than the one before it, is known as a contango. “You are starting to see a shift in the curve,” said Stephen Schork, president of energy analysts Schork Group in Philadelphia. “You are starting to see a return of demand to the front of the board.” Contango trading encourages companies to increase stockpiles. U.S. crude-oil supplies rose in 10 of the past 11 weeks, according to the Energy Department. Falling Demand The Paris-based IEA, an adviser to 28 nations, said global oil demand will contract this year for the first time since 1983 and reduced its outlook for 2009. Consumption worldwide will shrink in 2008 by 200,000 barrels a day, or 0.2 percent, the IEA said in a monthly report today. The reduction in demand is concentrated in developed economies in the Organization for Economic Cooperation and Development, where oil use will tumble 3.3 percent. Next year’s growth may be wiped out if the economic slump deepens, the agency said. “I don’t think we will be able to sustain these rallies because of the poor economy and the fact that we are swimming in oil,” said Ric Navy, a broker at BNP Paribas SA in New York. “I think we will stay between $40 and $47 for the near term with a possibility of jumping as high as $50 if OPEC comes up with a big cut next week.” Brent crude oil for January settlement increased $3.99, or 9.4 percent, to $46.39 a barrel on London’s ICE Futures Europe exchange. To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

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