Oil Ends Six Days of Declines as OPEC Signals Big Output Cut

By Gavin Evans

Dec. 8 (Bloomberg) -- Crude oil rose for the first time in seven days in New York after the Organization of Petroleum Exporting Countries’ president said there was consensus for a “significant” production cut when the group meets next week.

A “severe” cut may be needed to halt the decline in prices, group president Chakib Khelil told the Associated Press in a Dec. 6 interview. Some analysts are targeting a reduction of as much as 2 million barrels a day, he said, without saying how big a cut the group is planning.

“If you were to take 2 million barrels a day out of the market it will have an impact,” said Gerard Burg, minerals and energy economist at National Australia Bank Ltd. in Melbourne. “It’s really a demand dominated market” now, and that will temper the influence any cut has on prices, he said.

Crude oil for January delivery rose as much as $1.33, or 3.3 percent, to $42.14 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $42.05 at 11:14 a.m. Sydney time.

Oil fell 25 percent last week, the biggest weekly decline since the Persian Gulf war of 1991, as recession deepened in the U.S., Europe and Japan. Prices dropped 6.5 percent on Dec. 5 after a report showed U.S. payrolls plunged by 533,000 last month, the biggest decline in 34 years.

Deep Recession

“You’re really going to have a very deep, slow, drawn out recession in the western world” as households reduce spending to clear debt, Justin Smirk, senior economist at Westpac Banking Corp. in Sydney, said in a Bloomberg television interview. “Things will get worse before they get better” and pressure will remain on commodity prices through mid-2009, he said.

New York oil futures have dropped 72 percent since reaching a record $147.27 on July 11 as global stock markets plunged and the slowdown from the U.S. and Europe spread to Japan and China.

Slowing world economies will trim global oil demand growth to 0.2 percent next year, the International Energy Agency said Dec. 5. That’s a 170,000 barrel-a-day cut from the agency’s forecast last month.

Brent crude oil for January settlement rose $1.09 cents, or 2.7 percent, to $40.83 a barrel on London’s ICE Futures Europe exchange today. The contract fell 6 percent to $39.74 on Dec. 5, the lowest settlement since Dec. 29, 2004.

OPEC pumps about 40 percent of the world’s oil and cut daily output 1.5 million barrels in October as prices slumped and inventories rose.

While a 2 million barrel reduction would be higher than many expect, it would also lift spare capacity in the industry to more than 6 million barrels, the highest since 2002, National Australia’s Burg said.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net