Oil Gains as Drop Deemed Excessive, OPEC May Cut Production

By Nesa Subrahmaniyan

Oct. 7 (Bloomberg) -- Crude oil rose for the first time in five days as some traders deemed yesterday's 6.5 percent decline excessive and because of speculation OPEC may announce output cuts at its December meeting as demand slows.

Oil rebounded from an eight-month low after U.S. stocks recovered from their worst levels yesterday on speculation the Federal Reserve will cut interest rates. OPEC, supplier of about 40 percent of the world's oil, will take ``appropriate measures'' to stabilize international markets, Chakib Khelil, the group's president, said yesterday.

``Prices have fallen way too much and at this rate it would probably prompt OPEC to cut back,'' said Tetsu Emori, a fund manager at Astmax Co. in Tokyo. ``Demand for crude has already taken a hit as profits to make gasoline are negative, so refiners are also cutting back on production.''

Crude oil for November delivery jumped as much as $2.99, or 3.4 percent, to $90.80 a barrel in electronic trading, and was at $90.75 at 2:57 p.m. Singapore time on the New York Mercantile Exchange. Crude oil futures have declined 38 percent from the record $147.27 reached July 11.

Yesterday, crude futures fell $6.07 to settle at $87.81 a barrel in New York. The contract touched $87.56, the lowest since Feb. 7, as the dollar rose against the euro, while OPEC chief Khelil said the price slide will continue next year.

Pemex Shutdowns

Petroleos Mexicanos, the third-largest supplier of crude to the U.S., closed six wells in the Gulf of Mexico and removed 33 workers from offshore platforms as Tropical Storm Marco passed nearby. Output from the producer's Lankahuasa platform was shut at 3 p.m. yesterday, Mexico City-based Pemex, as the company is known, said on its Web site. The El Raudal natural gas processing center was also shut, it said.

``It's not just one but many other factors affecting oil from its fundamentals to the credit crisis,'' Astmax's Emori said. ``The credit crisis has created a lot of uncertainty for investors and there's no real safe haven for investors.''

The Standard & Poor's 500 Index retreated 3.9 percent, extending the worst weekly slump since 2001. The Dow Jones Industrial Average lost 370 points. Both benchmarks pared declines of more than 7.7 percent in the final hour as traders increased bets on a Fed interest rate cut.

New York oil prices declined 12 percent last week as reports showed U.S. fuel demand the previous four weeks was the lowest in almost seven years.

OPEC Output

Brent crude oil for November settlement gained as much as $2.31, or 2.8 percent, to $85.99 a barrel on London's ICE Futures Europe exchange. It was at $85.74 at 2:57 p.m. Singapore time. Yesterday, the contract fell $6.57, or 7.3 percent, to $83.68 a barrel on yesterday, the lowest closing price since Oct. 23, 2007.

Oil production by the Organization of Petroleum Exporting Countries, which pumps 40 percent of the world's crude, fell 1.3 percent in September as output in Iraq dropped to a 13-month low, a Bloomberg News survey released Oct. 3 showed.

OPEC members pumped an average 32.19 million barrels a day last month, down 425,000 barrels a day from August, according to the survey of oil companies, producers and analysts. August output was revised up by 40,000 barrels a day because of higher Nigerian output.

Production by the 12 members with quotas, all except Iraq, declined 250,000 barrels to 30.055 million barrels a day, 382,000 barrels higher than OPEC's target. Output fell as oil prices declined 8.3 percent during September.

`Tight' Inventories

Societe Generale SA, France's second-biggest bank, trimmed its oil price estimate for the fourth-quarter by 8.7 percent to $105 a barrel and its 2009 outlook by 5.3 percent to $114. Global consumption will only increase by half the rate the bank had previously expected.

Oil prices will still be cushioned by ``tight'' inventories in industrialized countries and the potential for OPEC supply cuts, Societe Generale SA analysts including London-based Mike Wittner said in a report yesterday.

The credit crisis will deepen a U.S. recession and extend it into next year, according to a survey by the National Association for Business Economics.

U.S. refiners may cut gasoline output as a slump in demand slashes the profit from processing crude oil into the fuel.

The profit margin, or crack spread, for turning crude oil into gasoline fell below zero at the end of last week meaning refiners may lose money by continuing to produce the fuel.

Oil in New York will average $77 a barrel in 2009, down 27 percent from earlier forecasts, because of slowing demand in the U.S., said Australia & New Zealand Banking Group Ltd.

To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.