Oil Rises From 16-Month Low as Iran Calls for Bigger Output Cut

By Alexander Kwiatkowski and Christian Schmollinger

Oct. 23 (Bloomberg) -- Crude oil rebounded from a 16-month low after Iran said OPEC should cut production by 2 million barrels a day to stem the slump in prices.

Analysts in a Bloomberg survey expected OPEC to reduce output by at least 1 million barrels a day when the group meets in Vienna tomorrow. OPEC must ``balance'' the market, Iranian Oil Minister Gholamhossein Nozari said today.

``Between now and the end of the year OPEC will need to cut production by 2 million barrels a day in order to stabilize falling oil prices,'' Johannes Benigni, chief executive officer of Vienna-based JBC Energy, said today. ``One million barrels a day will be cut on Friday effective from December, with a promise to do more at the December meeting, if needed.''

Crude oil for December delivery rose as much as $1.67 a barrel, or 2.5 percent, to $68.42 a barrel on the New York Mercantile Exchange, and traded at $68.01 at 9:00 a.m. London time. Yesterday, futures fell $5.43 to $66.75 a barrel in New York, the lowest settlement since June 13, 2007.

Prices have tumbled 54 percent from the record $147.27 on July 11 and dropped 21 percent from a year ago.

U.S. fuel demand during the past four weeks was down 8.5 percent from a year ago, according to an Energy Department report yesterday. Gasoline demand averaged 8.8 million barrels a day in the past four weeks, down 4.3 percent from the same period last year, the report showed. Consumption of distillate fuel, a category that includes heating oil and diesel, averaged 3.9 million barrels a day, down 5.8 percent.

High Inventories

Brent crude oil for December settlement rose as much as $1.65, or 2.6 percent, to $66.17 a barrel on London's ICE Futures Europe exchange. It traded at $65.86 at 9:01 a.m. local time.

The Organization of Petroleum Exporting Countries, producer of 40 percent of the world's oil, will review production targets for the fourth quarter in Vienna tomorrow.

``The rate of reduction in demand is good for cutting,'' Iran's Nozari told reporters today.

Global oil inventories are ``high'' as some OPEC members struggle to sell crude amid the global financial crisis, OPEC President Chakib Khelil said yesterday as he arrived in Vienna.

``The question of reduction has to be discussed,'' said Khelil, declining to comment on the size of production quotas.

U.S. crude oil inventories rose 3.18 million barrels to 311.4 million barrels, the report showed. It was the fourth- straight increase. A gain of 2.65 million barrels was forecast, according to the median of responses in a Bloomberg News survey.

To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.netChristian Schmollinger in Singapore at christian.s@bloomberg.net.