Oil Rebounds After 10% Drop as OPEC May Act to Support Prices

By Robert Tuttle and Grant Smith

March 3 (Bloomberg) -- Oil gained, after dropping 10 percent yesterday, on speculation OPEC may take further steps to support prices at its meeting later this month.

The Organization of Petroleum Exporting Countries, implementing its biggest-ever supply cut, will devise a “solution” to boost oil prices when it meets on March 15, Iran’s oil minister said. The group supplies 41 percent of the world’s oil. Royal Dutch Shell Plc said it shut some production in Nigeria after a pipeline was attacked over the weekend.

“If the market fails to build on last week’s rally and it drops below $40, you are going to hear the drumbeat for another cut,” said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut.

Crude oil for April delivery rose $1.61, or 4 percent, to $41.76 a barrel at 9:15 a.m. on the New York Mercantile Exchange. The price has fallen 59 percent in the past year.

Yesterday, futures plunged $4.61, or 10 percent, to settle at $40.15 a barrel, the biggest one-day drop since Jan. 7, after global equity markets slumped on reports of manufacturing declines in China and the U.S. Prices are down 5.8 percent so far this year.

OPEC members “will review the situation of the market on March 15 in Vienna and introduce a new solution to improve oil prices,” Iran’s oil minister, Gholamhossein Nozari, was quoted as saying today by the official Islamic Republic News Agency.

“Even with the economic deterioration that triggered yesterday’s selloff, $40 is so far proving to be a floor,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. “The combination of OPEC production cuts and colder weather is tightening the market and giving support.”

Oil May Fall

Oil may fall as low as $32.70 a barrel if prices today close below the highest level reached in 1990 before the conflict between the U.S. and Iraq, according to technical analysis by PVM Oil Associates Ltd. On Oct. 10, 1990, oil rose to $41.15 as the U.S. prepared its military response to Iraq’s invasion of Kuwait.

Brent crude oil for April settlement rose $1.52, or 3.6 percent, to $43.73 a barrel on London’s ICE Futures Europe exchange. It declined 8.9 percent yesterday.

U.S. oil supplies probably rose last week as imports climbed and refineries ramped up operating rates, a Bloomberg News survey showed.

Crude-oil stockpiles increased 1 million barrels in the week ended Feb. 27 from 351.3 million the week before, according to the median of eight estimates by analysts. The Energy Department is scheduled to release its weekly report tomorrow at 10:30 a.m. in Washington.

“With OPEC cutting and the refiners operating at low levels, any builds that we’re seeing are really indicating poor demand,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore.

Refineries probably operated at 81.9 percent of capacity, up 0.5 percentage point from the week before, the survey showed.

Gasoline Stockpiles

Gasoline stockpiles probably dropped 750,000 barrels from 215.3 million in the prior week, according to the survey. Supplies of distillate fuel, a category that includes heating oil and diesel, probably fell 1.35 million barrels from 141.6 million.

OPEC “will likely” reduce supplies to support prices, Algerian Oil Minister Chakib Khelil said in an interview in Madrid yesterday.

OPEC members have reached almost 100 percent compliance with existing cuts at the end of February, Khelil said.

To contact the reporter on this story: Robert Tuttle in New York at rtuttle@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net