CH: Oil spikes to above $48 as investors eye OPEC cuts
— Oil prices rose sharply Monday to above $48 a barrel on fresh signs that OPEC may cut production again to adjust to a global downturn in demand.
Benchmark crude for April delivery was up $2.90 to $48.42 a barrel by mid-afternoon in Europe on the New York Mercantile Exchange. Oil prices rose $1.91 on Friday to settle at $45.52.
Prices were fluctuating within a wide range along with changes in the value of the U. S. dollar, which was mostly stronger Monday and luring investors away from commodities.
Earlier in Monday's session, the Nymex contract fell as low as $44.97 before recovering.
The Organization of Petroleum Exporting Countries plans to meet March 15 in Vienna, and some of the group's leaders have said a production cut is likely.
Iraq's oil minister was the latest official to advocate for higher oil prices, saying they were currently not "profitable and fair" for oil producing countries.
Hussain al-Shahristani said Monday on the private Sharqiyah television station that OPEC members were working to control prices to "inch them up."
On Sunday, Iranian Oil Minister Gholam Hossein Nozari was quoted by the official IRNA news agency as saying that OPEC members have "almost" completely complied with the 4.2 million barrels a day of output quota reductions announced since September.
Nozari also said OPEC should coordinate supply policy with non-OPEC producers.
"Oil is rallying primarily due to the speculation that OPEC will cut production," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. "The market in the last week or two has paid more attention to supply because the OPEC cuts have shown up in the data."
The government said last week that U.S. crude inventories fell for a second week in three, halting a trend over the previous six weeks that saw inventories jump more than 30 million barrels.
Most analysts expect OPEC to announce a cut of at least 500,000 barrels a day, though the cartel's biggest producer, Saudi Arabia, hasn't yet commented on the possibility of further output reductions.
"The Saudis are the most important voice," Shum said. "They typically don't say anything until the day before a meeting."
Analyst Olivier Jakob of Petromatrix in Switzerland said that a new OPEC cut of 800,000 barrels would take the total output cut to 5 million barrels a day since September, "probably all that is required" to help the Nymex contract push above $50.
Even so, the $50 floor for oil prices was seen as hard to maintain.
"A sustained rally beyond there is unlikely given large scale risk aversion and concerns over the global economy," said Sucden Research in London.
The dollar rebounded Monday against other major currencies after falling Friday on back of the high U.S. unemployment figures, putting some downward pressure on oil prices.
By 1400 GMT, the euro had recovered most of its earlier losses and stood at $1.2648 from $1.2662 late Friday in New York, while the British pound fell to $1.3820 from $1.4094. The dollar also rose against the Japanese yen, trading at 99.10 yen from 97.65 yen on Friday.
Investors are prone to buy commodities like oil and gold as a protection against the risk of inflation when the dollar weakens, but return to the U.S. currency as it strengthens.
Oil has traded near $40 a barrel since December after plummeting from $147 in July as crude demand fell amid the worst global recession in decades.
Oil investors often look to stock markets as a measure of sentiment on the overall economy, but crude has risen from below $35 a barrel last month despite the major U.S. equity indexes plunging to 12-year lows last week.
Oil rose Friday even as the Labor Department said America's unemployment rate rose to 8.1 percent in February, the highest since late 1983.
"Even though we have rather grim economic news, the oil market has broken away from the equities markets," Shum said. "I think oil may be a little overdone given that there's no good news on the economic front."
In other Nymex trading, gasoline for April delivery rose 1.54 cents to $1.3476 a gallon, while heating oil gained 1.95 cents to $1.2489 a gallon. Natural gas for April delivery was down 2.1 cents at $3.924 per 1,000 cubic feet.
In London, Brent prices gained 32 cents to $45.17 on the ICE Futures exchange.
