Crude Oil Rises as OPEC Members Lower Production to Avert a Supply Surplus

Crude oil for February delivery rose $1.56, or 3.6 percent, to $44.95 a barrel at 11:26 a.m. on the New York Mercantile Exchange. Futures touched $45.40, the highest since Dec. 22. Oil has lost 19 percent since reaching $55.67 on Oct. 25, the highest since the contract was introduced in 1983. Prices are 33 percent higher than a year ago.
Jan. 6 (Bloomberg) — Crude oil rose after the Iranian and Qatari oil ministers signaled that the Organization of Petroleum Exporting Countries may follow through on output cuts promised last month.

The oil market is oversupplied by 1.5 million barrels a day, said Qatari Oil Minister Abdullah bin Hamad al-Attiyah at a meeting with Asian buyers in New Delhi. OPEC pledged on Dec. 10 to cut output by 1 million barrels a day starting Jan. 1. The OPEC reductions occur as fuel demand grows.

“OPEC won’t allow crude to fall below $40 a barrel,” said Phil Flynn, vice president of risk management with Alaron Trading Corp. in Chicago. “Also, product demand is strong. It wasn’t even cold last week and we were consuming more than 4 million barrels of distillate fuel.”

Crude oil for February delivery rose $1.56, or 3.6 percent, to $44.95 a barrel at 11:26 a.m. on the New York Mercantile Exchange. Futures touched $45.40, the highest since Dec. 22. Oil has lost 19 percent since reaching $55.67 on Oct. 25, the highest since the contract was introduced in 1983. Prices are 33 percent higher than a year ago.

In London, the February Brent crude-oil futures contract rose $1.79, or 4.4 percent, to $42.30 a barrel on the International Petroleum Exchange. Brent futures have declined 19 percent since reaching $51.95 on Oct. 27, the highest since the contract began in 1988.

OPEC ministers will discuss price levels and the impact of their cutbacks when they meet next in Vienna on Jan. 30. The Qatari minister said “if there is a need to cut,” his nation would support a further reduction in supply at the meeting.

Iraqi Unrest

Oil shipments from Iraq have been reduced because of an upsurge in violence as the country prepares for elections on Jan. 30. Iraqi Prime Minister Ayad Allawi extended the country’s state of emergency by 30 days to ensure that all Iraqis are able to participate in the poll.

“There is a lack of selling because of the upcoming Iraqi election,” said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York. “You’ll find that few people want to sell until the election is concluded. There is not only a risk of increased attacks in Iraq but also Saudi Arabia.”

Iraq said persistent attacks against pipelines are delaying resumption of oil exports from northern fields after sabotage halted flows three weeks ago. Iraq has the third-biggest crude- oil reserves, according to figures from BP Plc.

“We want to restart but always there are explosions on the line,” Abdulilah al-Amir, a foreign relations adviser to the Iraqi oil minister, said by telephone from Baghdad. “We don’t have control of the situation.”

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

To contact the editor responsible for this story:
Robert Dieterich at rdieterich@bloomberg.net.

Last Updated: January 6, 2005 11:44 EST

Bloomberg