Oil Rises a Second Day as OPEC May Make Deeper Production Cuts
Jan. 14 (Bloomberg) -- Crude oil rose for a second day in New York after OPEC leaders said they may deepen output cuts to bolster prices.
OPEC is willing to reduce crude production again to ``preserve the price of oil,'' Venezuelan President Hugo Chavez said yesterday in Caracas. Saudi Arabia Oil Minister Ali al-Naimi said the kingdom's February output will be ``lower than the target'' set at the group's Dec. 17 meeting.
``These comments from the OPEC countries are supportive for the market and keep prices from losing ground,'' said Ken Hasegawa, a commodity derivatives sales manager at Newedge Group in Tokyo. ``We need time to see how effective the production cuts will be over the next one or two months.''
Crude oil for February delivery rose as much as $1.58, or 4.2 percent, to $39.36 a barrel and was at $39.15 at 3:13 p.m. Singapore time on the New York Mercantile Exchange. Yesterday, futures rose 0.5 percent, recovering from a five-day 23 percent decline. Oil has tumbled 59 percent in the past year as fuel demand falls because of a global recession.
``We will do what it takes to bring the market in balance,'' al-Naimi said as he arrived in New Delhi yesterday for a conference. The country is currently producing 8 million barrels a day, about level with its 8.051 million barrel-a-day allocation.
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,'' Chavez said in a speech to the National Assembly in Caracas.
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.
The U.S. economy will contract 1.5 percent this year, a half percentage point more than projected last month, according to the median of 59 forecasts in a survey taken from Jan. 5 to Jan. 12 by Bloomberg News.
``The economy needs some time to rebound,'' said Newedge's Hasegawa. ``Without this, the strength in crude oil will not be sustained and it's possible we may head toward $35, especially for February WTI.''
U.S. Stockpiles
Falling demand for raw materials has hit most commodity markets. The Reuters/Jefferies CRB Index of 19 raw materials has declined 53 percent since reaching a record in July. The gauge rose 1.64, or 0.7 percent, to 222.19 yesterday.
Brent crude oil for February settlement gained as much as 55 cents, or 1.2 percent, to $45.38 a barrel on London's ICE Futures Europe exchange. It rose 4.5 percent to settle at $44.83 a barrel yesterday. The contract expires tomorrow.
The more active March contract was at $47.95 a barrel, up 51 cents, at 3:11 p.m. Singapore time.
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.
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.
``This situation has now created a $10 difference between the first three months contract's and this has given an incentive for traders to store oil as much as possible,'' said Hasegawa.
Cushing Supplies
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.
Total storage capacity at Cushing is 47.7 million barrels, according to data from Lipow Oil Associates LLC.
As the February contract approaches expiry, the price may fall further as traders don't want to buy supplies because of the limited storage options at Cushing.
``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.''
Heating oil prices climbed in the U.S. because of cold weather in the Midwest and the Northeast, home to four-fifths of the country's fuel demand.
Heating oil for February delivery climbed as much as 1.79 cents, or 1.2 percent, to $1.5320 a gallon in New York. It gained yesterday 4.17 cents, or 2.8 percent, to settle at $1.5141 a gallon.
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