Oil Up Sharply Near $50 As OPEC Readies Output Cut
Light, sweet crude for January delivery was up $3.24 to $49.52 a barrel in electronic trading on the New York Mercantile Exchange by mid-afternoon in Europe. The contract briefly reached $50.05 before falling back. On Friday, it fell $1.70 to settle at $46.28.
In London, January Brent crude gained $3.40 to $49.81 on the ICE Futures exchange.
The Organization of Petroleum Exporting Countries, which accounts for 40 percent of global supply, has signaled it plans to announce a substantial reduction of output quotas at its meeting Wednesday in Algeria.
"The extent of such cuts is still unclear and this uncertainty has been a source of continuing volatility in futures markets," said a report by analysts at KBC Market Services in Great Britain.
Kuwaiti oil minister Mohammed al-Eleim said Monday that OPEC was "undoubtedly inclined" to cut production. But he added that any decision would balance the need for a cut with its impact on the ailing world economy and producer nations' need for revenue to fund development projects.
Iranian Oil Minister Gholam Hossein Nozari was quoted Sunday on his ministry's Web site saying that Iran would push for a production cut of 1.5 to 2 million barrels per day.
Analysts have questioned whether OPEC members will follow through with any announced cut.
"They're talking about a severe cut, but the question is their discipline," said Christoffer Moltke-Leth, head of sales trading at investment firm Saxo Capital Markets in Singapore. "Unless they really surprise the market, this cut may not support the price much."
Oil analyst Peter Beutel, of U.S. firm Cameron Hanover, also stressed the importance of OPEC members complying with announced cuts in helping to boost prices.
"OPEC has always found it easier to agree upon numbers than to implement them," Cameron Hanover said in a report. "Any agreement that leads to an actual cut of 1.5 million (barrels a day) will be bullish. Certainly, any real cut of less than a million (barrels a day) would not be."
Oil has jumped from a four-year low earlier this month of $40.50 a barrel on expectations that an OPEC output reduction could be the catalyst to stabilize the oil price, which has fallen 65 percent since July.
"For the first time in several weeks, there are signs that crude prices might have bottomed out and could be heading upward again," KBC Market Services said.
Investors largely ignored OPEC's 1.5 million barrels a day output cut in October, focusing instead on a slowing global economy that's hurt crude demand.
More bad macro-economic and company news from the U.S. and Europe over the coming weeks will likely push oil prices lower, Moltke-Leth said.
"I expect crude to continue its slide and I don't think OPEC is going to prevent that," Moltke-Leth said. "Demand destruction in the major economies will still very much be on the agenda. We could go as low as $30 a barrel."
Olivier Jakob of Petromatrix in Switzerland said that while no new data was expected this week to show a global rise in appetite for crude, the impact of the OPEC meeting on the supply side likely would be considerable.
"There is no data available to point to an improving demand, but this week will be focused on the supply side and the global supply and demand for the first half of 2009 will need to be rewritten on Thursday after the OPEC decision," Jakob said.
In other Nymex trading, gasoline futures rose 6.94 cents to $1.1471. Heating oil gained 9.41 cents to $1.5875 a gallon, while natural gas for January delivery jumped 16.2 cents to 5.65 per 1,000 cubic feet.
Associated Press writer Alex Kennedy in Singapore contributed to this report.