Oil Rises as U.S. May Bail Out Automakers, OPEC May Cut Output

By Gavin Evans and Christian Schmollinger

Dec. 15 (Bloomberg) -- Crude oil rose in New York on speculation the Bush administration will rescue U.S. automakers and OPEC may make the biggest supply cut in a decade.

U.S. President George W. Bush may consider using funds for rescuing Wall Street banks to aid automakers. The Organization of Petroleum Exporting Countries, which pumps 42 percent of the world’s oil, will lower output targets by 7.3 percent at a Dec. 17 meeting, according to a Bloomberg survey.

“Oil futures are reacting to some of those government efforts and the expectations that the U.S. will bail out the automakers,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. “OPEC is also building sufficient expectations that they will do something drastic so prices are also creeping up because of that.”

Crude oil for January delivery rose as much as $1.21, or 2.6 percent, to $47.49 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $47.44 at 10:28 a.m. in Singapore.

Carmaking “is a fairly key sector for the U.S. economy,” said Toby Hassall, research analyst with Commodity Warrants Australia Pty in Sydney. “I do expect a rescue package in some form to go through quite soon.”

Production, Confidence

The White House said it would consider using its $700 billion bank bailout fund to help General Motors Corp. and Chrysler LLC following the Senate’s rejection of an aid package.

A report today will probably show industrial production in the U.S., the world’s largest oil consumer, contracted 0.9 percent last month as automakers cut output, according to a survey of economists. Sentiment among the largest manufacturers in Japan, the third-largest oil user, fell the most in 34 years according to the nation’s quarterly Tankan survey today.

“The whole macro picture is key,” Commodity Warrants’ Hassall said.

China aims to increase its money supply 17 percent in 2009 and encourage lending to boost domestic consumption and buoy growth in the world’s fourth-largest economy.

Brent oil for January settlement rose as much as 84 cents, or 1.8 percent, to $47.25 a barrel on London’s ICE Futures Europe exchange. The contract expires tomorrow. The more actively traded February futures rose 1.7 percent to $49.92 at 10:29 a.m. Singapore time.

OPEC Output

New York futures are down 68 percent from a record of $147.27 a barrel and touched a four-year low of $40.50 Dec. 5.

Oil prices will fall further if OPEC nations don’t cut daily output by at least 1.5 million barrels at this week’s meeting, Iranian Oil Minister Gholamhossein Nozari said yesterday.

“There is fairly strong support” for oil around current levels, Commodity Warrants’ Hassall said. “OPEC is going to make a supply-side response quite soon” while government stimulus packages will also start being felt, he said.

The global slump may reduce daily oil use to 85.8 million barrels in 2008, the first decline since 1983, the International Energy Agency said Dec. 11. A forecast 0.5 percent increase in fuel use next year may be wiped out if the recession deepens, the Paris-based agency said.

Hedge-fund managers and other large speculators increased their net-long positions in New York crude-oil futures in the week ended Dec. 9, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 10,807 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 8,558 contracts, or 381 percent, from a week earlier.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Gavin Evans in Wellington at gavinevans@bloomberg.net