Oil Rises as Traders Close Bets on Decline, Possible OPEC Cut

By Christian Schmollinger

March 12 (Bloomberg) -- Crude oil rose for the first day in three as traders closed out bets that prices would fall amid speculation OPEC may cut output for a fourth time.

Investors purchased contracts to profit from so-called short sales after crude dropped 7.4 percent yesterday as U.S. inventories showed a bigger-than-expected gain. Algerian Energy Minister Chakib Khelil said yesterday OPEC is likely to reduce output again at this weekend’s meeting. Other ministers have called for the group to halt reductions.

“Crude has sold off quite a bit so people are covering their positions,” said Anthony Nunan, an assistant general manager for risk management at Mitsubishi Corp. in Tokyo. Traders are also buying “as insurance if there is an OPEC announcement of a cut. But if OPEC continues saying they want to see how compliance is, we going to see it drift lower.”

Crude oil for April delivery rose as much as 83 cents, or 2 percent, to $43.16 a barrel in electronic trading on the New York Mercantile Exchange. It was at $42.93 a barrel at 3:34 p.m. Singapore time. Yesterday, April futures fell $3.38 to settle at $42.33 a barrel, the lowest since March 3. Prices are down 3.7 percent this year.

U.S. supplies increased 749,000 barrels to 351.3 million barrels last week, the Energy Department said yesterday. Stockpiles were forecast to rise by 250,000 barrels, according to the median of analyst estimates in a Bloomberg News survey. Refineries ran at 82.7 percent of capacity, down from 85 percent a year earlier, as demand slipped.

Gasoline Supplies

Gasoline inventories declined 2.99 million barrels to 212.5 million barrels in the week ended March 6, the department said. Stockpiles were forecast to fall by 1 million barrels, according to the median of analyst estimates in the Bloomberg survey.

Distillate stockpiles rose 2.1 million barrels to 145.4 million, the report showed. A 200,000-barrel gain was forecast.

OPEC has reduced daily production targets by 4.2 million barrels since September. Ministers will meet in Vienna on March 15 to discuss whether to make further cuts.

“The market expects a reduction and we have to reduce, otherwise prices will fall,” Algerian Minister Khelil said in Algiers yesterday. “There will be a debate in Vienna, but I think the consensus will be to seek stability of prices through a reduction.”

Algeria’s call for further cuts differs from the view of Qatari Oil Minister Abdullah bin Hamad al-Attiyah, who said in an interview in Doha this week that “we cannot discuss another cut until we see the compliance at 100 percent,” for previous pledged reductions.

OPEC Output

The 11 OPEC members with quotas, all except Iraq, produced 25.39 million barrels a day in February, down from 29.22 million barrels a day in September, according to a Bloomberg News survey of oil companies, producers and analysts. The group agreed to pump 24.845 million barrels a day starting Jan. 1.

“The market had priced in a cut so if they don’t cut they will be slightly bearish,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. “But overall, I think they’ll be successful at defending the oil price floor. So far the cuts have been quick and deep.”

Brent crude oil for April settlement rose as much as 90 cents, or 2.2 percent, to $42.30 a barrel on London’s ICE Futures Europe exchange. It was at $42.09 a barrel at 3:33 p.m. Singapore time. The contract yesterday declined $2.56, or 5.8 percent, to end the session at $41.40 a barrel.

Economic Impact

The continued economic contraction in consuming countries is weighing on oil prices.

Japan’s gross domestic product shrank an annualized 12.1 percent in the three months ended Dec. 31, less than the 12.7 percent reported last month, the Cabinet Office said today in Tokyo. The median estimate of economists was for a 13.4 percent decline. The country is the third-largest oil consumer.

U.S. Energy Secretary Steven Chu said he’ll caution OPEC ministers about higher oil prices when he talks with them before their next meeting.

“If the cost of petroleum increases, that will create a huge strain on the ability of the world’s economy to recover,” Chu said after testifying at a Senate hearing in Washington yesterday.

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