Oil rises to near $48 as OPEC signals supply cuts

March 10, 2009 5:32:34 AM PDT
Oil rose to near $48 a barrel Tuesday after OPEC signaled it will likely announce another production cut within days, adding to large supply reductions the cartel has already implemented. Benchmark crude for April delivery was up 58 cents to $47.65 a barrel by midday in Europe on the New York Mercantile Exchange. Oil prices gained $1.55 on Monday to settle at $47.07.

In London, Brent prices rose $1.06 to $45.19 on the ICE Futures exchange.

Leaders of the Organization of Petroleum Exporting Countries have suggested for weeks that the group may cut output quotas at its next meeting on March 15 in Vienna.

On Monday, Kuwaiti Supreme Petroleum Council member Moussa Marafi told the Kuwait News Agency that an OPEC production cut of a million barrels a day would raise prices to over $50 a barrel by the third quarter of 2009.

Marafi said OPEC compliance with the 4.2 million barrels a day of cuts announced since September has been "very high" at 80 percent and would reach 90 percent by the time the group meets Sunday.

Investors expect OPEC to announce fresh production cuts of between 500,000 and 1 million barrels a day, said Clarence Chu, a trader with market maker Hudson Capital Energy in Singapore.

"If the cut exceeds expectations, there would be a short-term pop in prices," Chu said. "But it will take months for the cut to affect supplies in the U.S. It's not an overnight thing."

Iraqi Oil Minister Hussain al-Shahristani said Monday on Sharqiyah television station that oil prices were too low and OPEC is working to "inch them up."

Investors largely brushed off OPEC's output cut announcements for months, doubting whether the 12-member group would have the discipline to implement them. But OPEC has complied with most of the quota reductions, earning back some credibility, Chu said.

"Everybody used to produce over quota, and OPEC lost credibility," Chu said. "According to Game Theory, cartels don't work because each member gains from cheating."

"But with prices so low, they've had to cooperate."

Oil prices have fallen from $147 a barrel in July as crude demand plummeted amid the worst global economic slump in decades. Prices won't likely jump higher until the U.S. economy stabilizes and crude demand increases, Chu said.

"The bad economic news won't go away for a while," Chu said. "But demand should pick up by the end of the year, and I see prices drifting toward $55 a barrel in the second half."

In other Nymex trading, gasoline for April delivery was down 1.21 cents to $1.3230 a gallon, while heating oil was little changed at $1.2124 a gallon. Natural gas for April delivery fell 4.8 cents to $3.817 per 1,000 cubic feet.


Associated Press writer Alex Kennedy in Singapore contributed to this report.

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