BLBG: Oil Rises a Second Day as OPEC May Make Deeper Production Cuts
Crude oil rose for a second day after OPEC leaders said they may deepen production cuts to bolster prices.
OPEC members Saudi Arabia and Venezuela signaled yesterday that output will be reduced further. Saudi Arabian Oil Minister Ali al-Naimi said February output will be “lower than the target” set at the group’s Dec. 17 meeting. The U.S. Energy Department will likely say today that crude oil stockpiles gained a third week, according a Bloomberg News survey.
“OPEC’s policy right now is to verbally intervene in order to influence the market,” said Bayram Dincer, a commodity analyst at Dresdner Bank AG in Zurich. “Today, prices are responding to their talk about production cuts.”
Crude oil for February delivery rose as much as $1.67, or 4.4 percent, to $39.45 a barrel and was at $39.35 at 6:16 a.m. London time on the New York Mercantile Exchange. Oil has tumbled 59 percent in the past year as fuel demand falls because of a global recession.
Brent crude oil for February settlement gained as much as $1.17, or 2.6 percent, to $46 a barrel on London’s ICE Futures Europe exchange. The contract expires tomorrow.
The more active March contract was at $48.36 a barrel, up 92 cents, at 9:18 a.m. London time.
Saudi Arabia is currently producing 8 million barrels a day, about level with its 8.051 million barrel-a-day allocation, al-Naimi said at a conference in New Delhi yesterday.
Oil ministers from the Organization of Petroleum Exporting Countries agreed in Oran, Algeria, to cut supply by 9 percent to 24.845 million barrels a day starting Jan. 1.
Further Reduction
“We’re willing to cut 2 million more, 4 million more barrels to preserve the price of oil,” Venezuelan President Hugo Chavez said in a speech to the National Assembly in Caracas yesterday.
The group needs to make the deepest supply reductions in its history to comply with the new target. The 11 OPEC nations with quotas produced an average of 27.45 million barrels a day in December, according to data compiled by Bloomberg News.
U.S. crude-oil stockpiles probably gained 2.75 million barrels in the week ended Jan. 9, according to the median of 14 responses by analysts in a Bloomberg News survey. The department will release its weekly petroleum supply report today.
Inventories of gasoline and distillate fuel, a category that includes heating oil and diesel, rose, according to the Bloomberg News survey.
Contango Structure
The price of oil for delivery December 2009 is 55 percent more than for February, allowing traders to profit if they have the ability to store crude. This structure, in which the subsequent month’s price is higher than the one before it, is known as contango.
Oil supplies at Cushing, Oklahoma, rose to 32.2 million barrels the week ended Jan. 2, up 81 percent from a year earlier and the highest in at least four years, Energy Department data show. The city is the delivery point for oil futures traded on Nymex.
“Storage at Cushing is near a historical high,” said Newedge’s Hasegawa. “No one can buy because there is no place to store. So the spread between the front month and the second month will expand more.”
