Oil Climbs for Third Day on Speculation OPEC Will Cut Output

March 10 (Bloomberg) -- Crude oil climbed for a third day in New York on speculation the Organization of Petroleum Exporting Countries will decide to reduce output when ministers gather in Vienna on March 15.

The “dramatic drop” in oil prices has been greater than warranted by the decline in global demand, Venezuelan Finance Minister Ali Rodriguez said March 8. OPEC must remove 800,000 barrels a day to meet its commitment to reduce output by 4.2 million barrels since September, Secretary General Abdalla el- Badri said in Qatar yesterday.

“OPEC has stopped the development of large surpluses and is responsible for a tightening of supply,” said Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York. “The signs are that they have already decided to announce an additional cut.”

Crude oil for April delivery rose 20 cents, or 0.4 percent, to $47.27 a barrel at 10:09 a.m. Sydney time on the New York Mercantile Exchange. Prices, up 5.5 percent this year, have tumbled 68 percent from a record in July.

Yesterday, futures rose $1.55, or 3.4 percent, to settle at $47.07 a barrel. It was the highest settlement since Jan. 6.

OPEC has cut production targets three times since September to combat price declines and prevent a glut on world markets.

Oil will rise above $50 a barrel in the third quarter if OPEC cuts production by 1 million barrels a day at its March 15 meeting, Kuwaiti state news agency KUNA reported, citing Mussa Maarafi, a member of the country’s Supreme Petroleum Council.

Further Cuts

“OPEC members are talking about further cuts,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “They have been better at complying with their targets than in the past but still haven’t made all of the cuts that they promised.”

Saudi Arabia wants OPEC to comply with its existing output ceiling and opposes a further production cut, al-Hayat newspaper reported, citing an unidentified person.

The 11 OPEC members with quotas, all except Iraq, produced 25.39 million barrels a day in February, down from 29.22 million barrels a day in September, according to a Bloomberg News survey of oil companies, producers and analysts.

“OPEC has made substantial cuts since production peaked in July,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “The longer this trend continues, the more prices will be supported. We are starting to see evidence of lower availability of oil.”

Shrinking Economy

The global economy is likely to shrink for the first time since World War II, and trade will decline by the most in 80 years, the World Bank said. The Washington-based bank didn’t provide a specific estimate in a report earlier this week.

“The only prop the bulls have is OPEC,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “They admit they still have to cut another 800,000 barrels to comply with what they’ve already promised. This is an awfully weak peg to hang onto, given all of the horrible economic news here and around the world.”

Brent crude oil for April settlement declined 72 cents, or 1.6 percent, to end the session at $44.13 a barrel on London’s ICE Futures Europe exchange. Oil in New York traded at a premium of $2.94 a barrel to the Brent grade yesterday, the widest spread since Nov. 13.

A premium of Brent to West Texas Intermediate, the grade traded in New York, disappeared after a weekly Energy Department report on March 4 showed a third straight drop in stockpiles in Cushing, Oklahoma, the delivery point for New York futures. Rising inventories at Cushing had pushed WTI prices to record discounts to Brent crude.

April Strength

The price of oil on the Nymex for delivery in May is 95 cents a barrel higher than for April, down from a 99 cent premium yesterday and a $2.20 premium on March 6.

This structure, in which the future month’s price is higher than the one before it, is known as contango and allows buyers to profit from hoarding oil.

“The big story is the strength of the April contract,” Evans said. “It now trades at a premium to Brent and the discount to the May on Nymex has narrowed a great deal.”

An Energy Department report due tomorrow will probably show that U.S. stockpiles of crude oil fell 500,000 barrels last week, according to the median of nine analyst responses to a Bloomberg News survey. Gasoline stockpiles dropped 1 million barrels, according to the survey.