Crude Oil Rises After OPEC Cut Output in January to Avoid Glut

By Mark Shenk

Feb. 3 (Bloomberg) -- Crude oil rose on speculation that reduced OPEC production in January will curb surplus global inventories and bolster prices.

OPEC production averaged 28.57 million barrels a day last month, down 3.5 percent from December, according to a Bloomberg News survey of oil companies, producers and analysts. The United Arab Emirates and Qatar plan to extend reductions in crude oil shipments in March, according to refiners.

“It looks like OPEC made substantial cuts,” said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. “They still have a long way to go but it appears the market is inclined to give OPEC the benefit of the doubt.”

Crude oil for March delivery rose 33 cents, or 0.8 percent, to $40.41 a barrel at 9:10 a.m. on the New York Mercantile Exchange. Futures touched $39.65, the lowest since Jan. 20. Prices are down 9.4 percent this year and are 55 percent lower than a year ago.

The Organization of Petroleum Exporting Countries, responsible for more than 40 percent of global oil supply, agreed on Dec. 17 in Oran, Algeria, to lower production as oil prices headed for their first annual decline since 2001.

OPEC members with output quotas, all except Iraq, pumped 26.2 million barrels a day, 1.36 million more than their target of 24.85 million barrels a day.

U.A.E. and Qatar

The U.A.E. and Qatar plan to reduce their crude oil shipments to Asia in March in line with OPEC cuts, said refiners who received notices from suppliers.

State-owned Qatar Petroleum will slash supplies of its Marine grade sold under long-term contracts by 15 percent, following a 6 percent cut in February, said the refinery officials in Singapore, China, Japan and South Korea, who asked not to be named, citing confidentiality agreements.

Abu Dhabi National Oil Co., the Emirates’ state-owned producer, will cut supplies of Murban oil by 10 percent after a 15 percent reduction in February, said the officials. Shipments of Upper Zakum grade will be reduced by 15 percent, Umm Shaif by 10 percent and Lower Zakum by 10 percent, similar to cuts in volume last month.

The price of West Texas Intermediate crude oil, the basis for futures traded on Nymex, will average $35 a barrel this year, Morgan Stanley said. Crude will rise to average $55 a barrel in 2010 and $85 a barrel in 2011, analysts led by Hussein Allidina said in the Feb. 2 report.

“We keep testing the $40 area and have been unable to make a decisive breakthrough,” said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut. “The market has either found a bottom or we will see the dam burst and prices will tumble.”

Brent crude oil for March settlement rose 66 cents, or 1.5 percent, to $44.48 a barrel on London’s ICE Futures Europe exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.