By Nesa Subrahmaniyan and Christian Schmollinger Dec. 17 (Bloomberg) -- Crude oil rose for the first time in four days as stock markets rallied after the U.S. Federal Reserve cut its benchmark interest rate to a record low and pledged to revive the economy. Oil gained as much as 2.5 percent in New York as Asian equities surged. Yesterday, oil fell on speculation further output cuts by OPEC, supplier of 40 percent of the world’s oil, will be insufficient to halt a slide in prices. Crude oil for January delivery climbed as much as $1.07 to $44.67 a barrel, and traded at $44.36 at 1:45 p.m. Singapore time on the New York Mercantile Exchange. Prices have tumbled 70 percent from a record $147.27 on July 11. “The market’s driven by economic news and anything that’s affecting the demand side is moving oil,” said Gerard Burg, the minerals and energy economist at National Australia Bank Ltd. in Melbourne. “OPEC’s cut has been priced in and there’s skepticism about their adherence to quotas but any withdrawal of supplies would help.” Yesterday, futures fell 91 cents, or 2 percent, to $43.60 a barrel on skepticism that OPEC will reduce production targets enough at a meeting today to halt a decline in prices. Crude oil also rallied today as the dollar declined against the euro and the yen, raising the appeal of commodities as a hedge against inflation. The dollar fell toward a two-month low against the euro and also traded near the weakest level since 1995 versus the yen. Russian Help Saudi Arabian Oil Minister Ali al-Naimi said yesterday that the Organization of Petroleum Exporting Countries should trim output by 2 million barrels a day. “Everyone is on pins and needles for this OPEC meeting,” said Jonathan Kornafel, director for Asia at options traders Hudson Capital Energy in Singapore. “Whenever you have a meeting like this where they have made big pronouncements and Russia is attending, there is a couple dollars of premium built into the market.” The group is seeking the help of Russia, the world’s second-largest crude exporter, to share the burden of cuts. “OPEC appears to be caught in a ‘catch 22’ situation,” Harry Tchilinguirian, a senior oil market analyst at BNP Paribas SA in London wrote in a report. “An attempt to aggressively boost prices, by pursuing a larger-than-expected cut, could backfire by turning sentiment even more pessimistic on the economy.” Russia may cut oil production by as much as 400,000 barrels a day as demand shrinks because of the global recession, Kuwait’s Oil Minister said late yesterday. Russian Deputy Prime Minister Igor Sechin, who is attending OPEC’s meeting in Algeria today, is “promising to act positively,” Oil Minister Mohammed al-Olaim said in an interview with Bloomberg Television. “We think they will seriously do so.” Excess Supplies A production cut of 400,000 barrels a day is being talked about by the Russians and they “do think they will have to participate in a cut,” al-Olaim added. “Realism would suggest that achieving a price floor appears a more feasible proposition than aiming outright for much higher prices given the current economic outlook,” BNP’s Tchilinguirian said. OPEC members and other producers such as Russia are under increasing pressure to reduce supplies as oil’s $100 a-barrel collapse cuts export revenue, creating budget shortfalls. OPEC would want to move the oil market into a state of backwardation from the current contango status, BNP’s Tchilinguirian said in his report. Backwardation happens when prices for immediate delivery are higher than in future months, indicating spot market supplies are tighter, while the opposite happens in a contango market. Falling Consumption “The effort to reduce supply this time around will need to overcome the hurdle of weak refiner crude demand, and not just high inventory levels,” Tchilinguirian said in his report. World oil use in 2009 will drop by 0.2 percent to 85.68 million barrels a day, the OPEC secretariat said in a report yesterday. That’s 1 million barrels a day lower than forecast last month. The U.S. Energy Department said on Dec. 9 that global demand will decline 0.5 percent to 85.3 million barrels a day. U.S. crude-oil and fuel supplies have climbed as the recession crimps demand. Crude inventories probably rose 600,000 barrels last week, according to the median of 11 responses in a Bloomberg News survey conducted before an Energy Department report today. The report will probably show that stockpiles of gasoline and distillate fuel, a category that includes heating oil and diesel, also increased. Brent crude oil for February settlement rose as much as $1.25, or 2.7 percent, to $47.90 a barrel on London’s ICE Futures Europe exchange, and traded at $47.60 at 12:43 p.m. Singapore time. The January contract expired yesterday, after declining 4 cents to $44.56 a barrel. “Whether the reduction in OPEC supply can outpace the decline in demand will be decisive for the future direction of oil prices,” Tobias Merath, head of commodity research at Credit Suisse Group, said in a note today. To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.

Source