Crude Oil Rises a Second Day as OPEC Prepares to Cut Production

By Grant Smith

Oct. 20 (Bloomberg) -- Crude oil rose for a second day on speculation OPEC will cut production to halt a 50 percent slide in prices from July's record.

OPEC, supplier of about 40 percent of the world's oil, may pare output by 2 million barrels a day in stages to stabilize prices, said Chakib Khelil, the group's president. Deutsche Bank AG cut its 2009 crude oil price estimate by 35 percent to $60 a barrel, citing the possibility of a ``major world recession.''

``OPEC are going to step in and try to protect their price,'' Robert Laughlin, senior broker at MF Global Ltd. in London, said in a television interview. ``They have to do a million -- anything less and it might backfire against them.''

Crude oil for November delivery gained as much as $2.15, or 3 percent, to $74 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $73.19 at 9:30 a.m. in London.

Oil dropped to a 14-month low of $68.57 a barrel on Oct. 16. Options contracts to sell oil at $50 by December soared 28- fold in the past two weeks on the New York Mercantile Exchange.

Contracts that allow holders to sell 1,000 barrels of oil for $50 each by December closed at $280 on the Nymex on Oct. 17, up from $10 on Oct. 3.

China's economy grew 9 percent in the third quarter, the slowest pace in five years, underscoring concern that the spreading financial crisis threatens the biggest contributor to global growth.

`Significant Cut'

The Organization of Petroleum Exporting Countries brought forward to Oct. 24 a Vienna meeting planned for November to discuss output levels.

While there is a consensus among the group's members to cut output, there's no agreement on the size of the reduction, and that could range between 1 million and 2 million barrels a day, Khelil, the group's president said in an interview on Algerian television yesterday.

``A one to 2 million barrel cutback is quite likely,'' Tom James, an independent commodity trading adviser, said in a Bloomberg Television interview. ``It's important we do hold around $60 to $70. If we see $50 or below for many, many months, this is going to hurt investment in the industry.''

OPEC's 13 members produced 32.2 million barrels a day in September, according to a survey of analysts and producers.

Brent crude oil for December settlement rose as much as $1.97, or 2.8 percent, to $71.57 a barrel on London's ICE Futures Europe exchange, and traded at $70.42 at 9:31 a.m. London time.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net