Oil Rises After OPEC President Calls for End to Overproduction

By Christian Schmollinger

Sept. 10 (Bloomberg) -- Crude oil jumped in New York as OPEC President Chakib Khelil called on members to stop producing more than the group's set quota, a move that would reduce supplies by 520,000 barrels a day.

The Organization of Petroleum Exporting Countries agreed to cut daily output to their 28.8 million-barrel limit, Khelil said in Vienna today. The group kept its output quota unchanged after adjusting for the departure of Indonesia and including new members Angola and Ecuador.

``It's definitely a defensive measure to keep prices above $100,'' said Jonathan Kornafel, a director for Asia at Hudson Capital Energy. ``They don't want to see us go back to $140 or $150 but they want us over $100. It's a bit of a shock to the market and that's why we're up.''

Crude oil for October delivery climbed as much as $1.56, or 1.5 percent, to $104.82 a barrel on the New York Mercantile Exchange and traded at $103.72 at 4:22 p.m. Singapore time. The contract dropped as low as $102.06 before the OPEC announcement.

Oil has fallen 31 percent from a record $147.27 a barrel on July 11 as high prices and slowing global economic growth reduced demand for fuels. Crude in New York yesterday reached its lowest level since April 2 while Brent oil traded in London fell as low as $99 a barrel.

``The current price is due to slower demand, not oversupply,'' said Tetsu Emori, a fund manager with Astmax Ltd. in Tokyo. ``The oversupply is a result and not a reason for lower prices. This is an adjustment of supply and demand only. It will not make the market tight as a result.''

OPEC Sentiment

Brent crude oil for October settlement rose as much as $1.72, or 1.7 percent, to $102.06 a barrel. It was at $100.89 a barrel at 4:22 p.m. Singapore time. The contract earlier fell as low as $98.89 a barrel.

OPEC said that a declining global economy and resultant falloff in oil demand along with more crude supply and the gains in the U.S. dollar had lowered prices. This means ``a shift in market sentiment causing downside risks,'' according to their statement after the meeting.

``Since the market is oversupplied, the conference agreed to abide by September 2007 production allocation (adjusted to include new members Angola and Ecuador and excluding Indonesia and Iraq) totaling 28.8 million barrels a day,'' OPEC said. ``Levels with which members committed to strictly comply.''

Pull-Out

Indonesia formally quit the group today as the country has become dependent on imports after failing to raise output. The nation joined OPEC in 1962. The country had a target of 865,000 barrels a day. OPEC's quota for 12 members including Indonesia had been 29.673 million barrels a day.

OPEC members have increased production this year as Saudi Arabia, the world's largest producer, sold more barrels to balance shortfalls elsewhere and slake the developing world's growing thirst for crude. That's taken output above the group's agreed targets.

Commodity index investors, blamed for record oil prices, sold $39 billion worth of oil futures between their July record and Sept. 2, causing crude to plunge, according to a report to be released today.

The work by Michael Masters, president of the Masters Capital Management hedge fund, blames investors who buy and hold an index of commodities for driving prices to records, and for their subsequent drop. It comes a day before the U.S. Commodity Futures Trading Commission is set to discuss its own study of energy trading with a congressional committee.

Masters testified three times before Congress this year, arguing that limits on traders would cut oil prices to $65 to $70 a barrel. He has been cited by lawmakers who introduced at least 20 measures to curb speculation. Congressional pressure on the CFTC to step up enforcement and restrict anonymous trades has pushed index traders out of their positions, Masters said.

Ike Strengthens

Hurricane Ike started to strengthen as it entered the Gulf of Mexico and headed in the direction of Texas, after leaving more than 170 people dead when it lashed Cuba and Haiti.

Ike's eye was 100 miles (165 kilometers) north-northeast of the western tip of Cuba and moving west-northwest at 7 miles per hour at 2 a.m. Miami time yesterday, according to the U.S. National Hurricane Center. Ike's winds strengthened to 80 miles per hour from 75 mph earlier.

The storm is forecast to make landfall between Corpus Christi, Texas, and Houston, according to a chart from the Hurricane Center.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.