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Oil Up to $45 Ahead of OPEC Meeting, Expected Cuts

Tuesday, 16 Dec 2008 08:15 AM

Oil prices rose to around $45 a barrel on Tuesday, a day before investors expect OPEC to announce a big production cut aimed at supporting prices which have plummeted in recent months as the global economic downturn has crimped demand.

By midday in Europe, light, sweet crude for January delivery was up 53 cents to $45.04 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session, it rose as high as $45.47 before retreating.

Overnight, the Nymex contract fell $1.77 to settle at $44.51.

In London, January Brent crude was up 45 cents to $45.05 a barrel on the ICE Futures exchange.

Investors are looking to the Organization of Petroleum Exporting Countries, which accounts for 40 percent of global supply, to announce a substantial reduction of output quotas at its meeting Wednesday in Algeria.

OPEC President Chakib Khelil suggested Monday the group may slash as much as 2 million barrels a day, equaling a cut at the cartel's last Algeria meeting four years ago.

Khelil said that a fair price for oil would be around $70 to $80 per barrel -- the benchmark for several OPEC members below which they lose money on production.

Mohammed Al-Aleem, Kuwait's oil minister, said Monday that OPEC should cut supply to help balance a large market surplus.

"At the very least, a cut should help stabilize the market," said Gerard Burg, minerals and energy economist with National Australia Bank in Melbourne. "The impact may be relatively muted, but it could add some upward pressure on prices."

Investors will be watching for evidence OPEC members are adhering to any announced cuts, as exceeding quotas has dogged the organization throughout its history.

"That's going to be the difficult thing," Burg said. "OPEC's cohesiveness has really deteriorated over the last few years because the world was consuming everything it could produce."

Many OPEC members based their budgets assuming oil prices would be above where they are now. The group's efforts to bolster prices -- including output cuts totaling 2 million barrels a day in September and October -- have been ignored by investors preoccupied with the worst economic slowdown to hit developed countries in decades.

Oil prices, which reached a four-year low at $40.50 earlier this month, have fallen about 70 percent since peaking at $147.27 in July.

"The market is still consumed with demand-side factors," Burg said. "We don't expect a recovery until the second half of next year, so there's potential for further negative news to have a dampening affect on the crude market."

Gasoline prices also fell in Europe abut remained far above U.S. levels, according to data released late Monday by TCS, the Swiss automobile club.

In Germany, Europe's largest economy, a liter of regular unleaded dipped to 1.132 euros ($1.54) or about $5.85 per gallon, which is 3.8 liters. On Dec. 1, it was 1.166 euros per liter.

In France, a liter of regular unleaded cost 1.110 euros ($1.51), down from 1.155 euros two weeks ago, while in Great Britain it cost 0.894 pounds ($1.36) compared to 0.915 pounds.

"Until now it has been mainly the U.S. driver that has benefited from the drop in oil prices," said Olivier Jakob of Petromatrix in Switzerland. "The continued weakness on oil combined with the fall of the dollar will now transfer more of the price correction to the European pumps."

In the United States, the average price for regular gasoline fell to a low of $1.6559 per gallon on Friday and has risen only minimally since.

In other Nymex trading, gasoline futures rose 1.85 cents to $1.0554 a gallon. Heating oil gained 3.14 cent to $1.4915 a gallon while natural gas for January delivery fell 2 cents to 5.625 per 1,000 cubic feet.

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Oil prices rose to around $45 a barrel on Tuesday, a day before investors expect OPEC to announce a big production cut aimed at supporting prices which have plummeted in recent months as the global economic downturn has crimped demand.By midday in Europe, light, sweet crude...
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