Oil Nears Six-Week High on Speculation OPEC Will Cut Production

By Gavin Evans

March 9 (Bloomberg) -- Crude oil climbed to the highest in almost six weeks in New York on speculation the Organization of Petroleum Exporting Countries will decide to reduce output in an effort to trim stockpiles and lift prices.

OPEC should cut production to reduce the surplus in world markets, Iraqi Oil Minister Hussain al-Shahristani told journalists on March 7, the Wall Street Journal reported. The “dramatic drop” in oil prices has been greater than warranted by the decline in global demand, Venezuelan Finance Minister Ali Rodriguez said yesterday. OPEC meets in Vienna on March 15.

“My inclination is that they will” cut production, said David Moore, commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “With demand possibly softer than generally expected a few months ago, they may be caught in a situation where there’s downward pressure on prices again” if they don’t reduce output, he said.

Crude oil for April delivery rose as much as $1.23, or 2.7 percent, to $46.75 a barrel, the highest intra-day price since Jan. 27. It was at $46.65 in after-hours electronic trading on the New York Mercantile Exchange at 8:30 a.m. in Singapore.

The contract jumped 4.4 percent to $45.52 a barrel on March 6 after a worse-than-expected U.S. jobless report weakened the dollar and increased the investment appeal of commodities.

OPEC pumps about 40 percent of the world’s oil and has cut production three times since September to slow the slump in prices and prevent a glut on world markets. The group agreed mid-December on constraints that would cut supplies in January by 2.2 million barrels a day.

Not ‘Clear Cut’

Comments from member states show this week’s decision is “not as clear cut” and the big reductions have already been made, Commonwealth’s Moore said. “They certainly don’t have to cut as much as they did last time.”

New York futures gained 1.7 percent last week, with reports of declining U.S. stockpiles and rising gasoline demand offsetting a 10 percent plunge at the start of the week as U.S. equity markets slumped.

Nymex prices had been “artificially depressed” and last week’s gains only brought New York contracts back into line with more consistent Brent prices, Moore said.

Brent crude oil for April settlement rose 62 cents, or 1.4 percent, to $45.47 a barrel on London’s ICE Futures Europe exchange. The contract rose 2.8 percent to $44.85 on March 6, trimming its loss for the week to 3.2 percent.

The global economic outlook remains “extraordinarily weak” and it’s hard to see prices climbing strongly any time soon, Moore said. Prices may suffer if a trade report due March 11 in China, the world’s second-largest oil consumer, shows a decline in imports of crude and products, he said.

The global economy is likely to shrink for the first time since World War II, and trade will decline by the most in 80 years, the World Bank said yesterday. The Washington-based bank didn’t provide an estimate of the contraction.

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