By Christian Schmollinger
Dec. 10 (Bloomberg) -- Crude oil rose as traders bought contracts to close out bets that prices will fall and on signs that OPEC will cut production twice in as many months.
OPEC, which pumps 40 percent of the world’s oil, may reduce its output limit by as much as 2.5 million barrels a day to reverse recent declines, billionaire hedge-fund manager Boone Pickens said yesterday. Traders who held short positions, or bets prices would fall, are purchasing futures after oil dropped more than 20 percent in the past two weeks.
“For short-term traders, for scalpers, that kind of drop is definitely a buy signal,” said Jonathan Kornafel, director for Asia at options trader Hudson Capital Energy in Singapore. “Everyone is waiting to see what OPEC does. There are enough things to support the market but nothing to propel it higher.”
Crude oil futures for January delivery rose as much as $1.42, or 3.4 percent, to $43.49 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $43.01 a barrel at 3:37 p.m. Singapore time. Yesterday, futures fell $1.64, or 3.8 percent, to $42.07 a barrel, capping a 23 percent drop since Nov. 26.
OPEC should make a “substantial” output cut when it meets on Dec. 17 in Algeria, Shokri Ghanem, Libya’s top oil official, said on Dec. 8. OPEC agreed on Oct. 24 to cut daily output by 1.5 million barrels.
Obama’s Plan
OPEC will “work it back up to $100,” Pickens said in an interview in New York. “It will all be determined by the global economy. If you get a recovery in the global economy, you will get it back up.”
U.S. President-elect Barack Obama proposed on Dec. 7 an economic stimulus plan based on infrastructure development to help lift the country out of its worst recession since World War II. Australia will start making one-time payments to families and pensioners under a A$10.4 billion grant program and China may cut personal income tax.
OPEC’s agreed 1.5 million barrel-a-day cut would be larger than a forecast drop in demand by the U.S. Energy Department. Global oil consumption will average 85.75 million barrels a day in 2008, down 50,000 barrels from 2007, the department said in its Short-Term Energy Outlook yesterday.
Global demand fell every year from 1980 to 1983, according to the department, the last time there was a yearly consumption drop. Oil usage will decline an additional 450,000 barrels a day next year to 85.3 million barrels a day, the department said.
2009 Forecasts
The International Energy Agency and OPEC have lowered demand forecasts in the past month because of the economic contraction.
The IEA reduced its 2009 estimate by 670,000 barrels a day, or 0.8 percent, to 86.5 million barrels a day in a Nov. 13 report. The Organization of Petroleum Exporting Countries cut its forecast for next year by 530,000 barrels a day, or 0.6 percent, to 86.68 million barrels a day, in its monthly oil market report on Nov. 17.
Traders are betting that oil for January delivery may fall below $42 a barrel, according to data on put options contract volume from the New York Mercantile Exchange. Crude may decline to $25 a barrel next year as demand drops on the economic contraction, Merrill Lynch & Co. said last week.
A government report today is forecast to show U.S. crude- oil inventories rose 1.3 million barrels last week, according to the median of 14 responses in a Bloomberg News survey. The report will probably show a drop in U.S. supplies of gasoline and distillate fuel, which includes diesel and heating oil.
The Energy Department is scheduled to release its weekly report at 10:35 a.m. today in Washington.
Brent crude oil for January settlement rose as much as $1.22, or 2.9 percent, to $42.75 a barrel on London’s ICE Futures Europe exchange. It was at $42.32 a barrel at 3:38 p.m. Singapore time. The contract yesterday declined $1.89, or 4.4 percent, to settle at $41.53 a barrel.
To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.
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