Crude Oil Rises as OPEC Cuts Output in January to Avoid a Glut

By Christian Schmollinger

Feb. 3 (Bloomberg) -- Crude oil rose in New York on speculation that OPEC, led by Saudi Arabia, cut its output in January to avoid a supply glut and bolster prices.

Production from the Organization of Petroleum Exporting Countries averaged 28.565 million barrels a day last month, down 3.5 percent from December, according to a Bloomberg News survey of oil companies, producers and analysts. A government report yesterday showed U.S. consumer spending fell in December for a record sixth consecutive month, cutting fuel consumption.

“The OPEC cuts have been a factor that has sustained prices,” said Tetsu Emori, a fund manager with Astmax Ltd. in Tokyo. “Global demand is getting smaller and that’s running fast against the pace of the production cuts.”

Crude oil for March delivery gained as much as 63 cents, or 1.6 percent, to $40.71 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $40.33 a barrel at 10:10 a.m. Singapore time.

Yesterday, futures fell $1.60, or 3.8 percent, to $40.08, the lowest settlement since Jan. 20. Prices are down 9.4 percent this year and are 55 percent lower than a year ago.

Brent crude oil for March settlement rose as much as $1.03, or 2.4 percent, to $44.85 a barrel on London’s ICE Futures Europe exchange. The contract yesterday declined $2.06, or 4.5 percent, to settle at $43.82 a barrel.

Saudi Arabia, OPEC’s biggest producer and the world’s top oil exporter, reduced output by 375,000 barrels a day last month to an average 8.025 million barrels a day, the lowest since December 2002. Production was 26,000 barrels a day less than its target of 8.051 million barrels a day, the survey showed.

OPEC Supply

OPEC, responsible for more than 40 percent of global oil supply, agreed Dec. 17 in Oran, Algeria, to reduce supply as oil prices headed for their first annual decline since 2001. Producers with output quotas, all members except Iraq, pumped 26.2 million barrels a day, 1.355 million more than their target of 24.845 million barrels a day.

The 1 percent drop in U.S. consumer purchases was larger than forecast and followed a 0.8 percent decrease in November, the Commerce Department said in Washington. The Institute for Supply Management’s factory index was 35.6 in January. Readings less than 50 signal a contraction and the measure has been below that level since February 2008.

Australia’s government will spend A$42 billion ($26.5 billion) on grants and infrastructure to prevent the economy from entering recession amid the global financial crisis, Treasurer Wayne Swan said today.

The nation’s trade surplus narrowed in December by more than economists forecast as coal and metal exports declined.

Workers’ Strike

Gasoline and heating-oil futures fell yesterday because U.S. refiners and the United Steelworkers union extended negotiations on a new contract over the weekend, delaying a potential strike. Royal Dutch Shell Plc and the union representing 30,000 U.S. refinery workers said they made progress in the second day of their extended contract talks.

“Deliberations are continuing and we feel that progress is being made,” said Lynne Baker, a spokeswoman for the United Steelworkers union. “We think we will be in a better position to know exactly where we’re at in the morning.” Stan Mays, a Shell spokesman, agreed the talks are progressing.

The union is seeking higher wages, a cost-of-living adjustment, and full medical, dental and vision-care benefits for employees and retirees. Workers also want improvements in plant safety practices after a March 2005 explosion at BP Plc’s refinery in Texas City, Texas, killed 15 people and injured 170.

Gasoline, Heating Oil

Gasoline futures for March delivery was at $1.1690 a gallon in New York. The contract declined 11.95 cents, or 9.4 percent, to settle at $1.1492 a gallon yesterday. Heating oil for March fell 9.16 cents, or 6.4 percent, to end the session at $1.3424 a gallon, the lowest since Dec. 30. It was at $1.3575 a gallon today.

U.S. crude-oil inventories probably rose last week as refineries reduced operating rates, a Bloomberg News survey of analysts showed.

Crude-oil stockpiles increased 2.75 million barrels in the week ended Jan. 23 from 338.9 million the week before, according to the median of analyst estimates before an Energy Department report tomorrow. It would be the 17th gain in 19 weeks.

Gasoline stockpiles rose 1 million barrels from 219.9 million, according to the survey. Supplies of distillate fuel, a category that includes heating oil and diesel, probably fell 1.4 million barrels from 144 million.

The Energy Department is scheduled to release its weekly report on Feb. 4 at 10:30 a.m. in Washington.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.