Oil rises on possible OPEC output cut
Tuesday, Oct 07, 2008 8:14PM UTC
by Rebekah Kebede
NEW YORK (Reuters) - Oil prices rose over $2 on Tuesday as signs OPEC was considering a supply cut outweighed concerns about the global financial crisis.
U.S. crude settled at $90.06 a barrel, up $2.25, after hitting an eight-month low on Monday as part of a four-day decline.
London Brent settled at $84.66 a barrel, up 98 cents.
"It seems the (OPEC) price hawks are lobbying for a production cut to support prices ... that may have sparked the late session spurt of buying to take us positive on the day," said Tom Knight, a trader at Truman Arnold in Texarkana, Texas.
Oil has plummeted from a record high of $147.27 a barrel in July as high fuel prices and the growing financial crisis slow oil demand in the United States, the world's top consumer, and other industrial nations.
The spread of the credit crisis has intensified gloom about the global economic outlook and weakened prospects for oil demand and prices, and has led some investors to sell off commodities for safer havens.
Oil's recent price drop has caused worry for some members of the Organization of the Petroleum Exporting Countries.
"If this volatility continues, OPEC will have to do something," Shokri Ghanem, chairman of Libya's National Oil Corp, told Reuters by telephone Tuesday.
"We may sit down together before December," he said.
OPEC's next meeting is in December in Algeria.
Earlier this week, Iran said OPEC may need to cut supply to prop up prices.
Further support has come from the slow recovery of the U.S. oil sector from Hurricane Ike. According to the U.S. Mineral Management Service, 44.8 percent of Gulf of Mexico production remained shut on Tuesday following the storm.
The U.S. Energy Information Administration on Tuesday lowered its forecast for world oil demand growth in 2009 versus 2008. The agency cut its forecast by 140,000 barrels per day from its estimate published last month.
Analysts also are watching oil demand from China -- which helped drive oil's rally from $20 a barrel in early 2002 -- for signs the crisis is hitting consumption in the world's second largest consumer.
Earlier Tuesday, oil prices received support after the U.S. Federal Reserve announced that it would start buying the short-term debt that many companies use to fund day-to-day operations in a move to restore credit flows.
An Australia cut rate cut also raised hopes that other countries would follow suit to bolster economic growth, which would support demand for oil.
But the moves failed to stem fears in the U.S. financial market about fallout from the credit crisis and U.S. stocks slid on Tuesday.
Tropical Storm Marco rolled over Mexico's Gulf coast on Tuesday, but all three of the country's main oil exporting ports remained open. On Monday, the storm prompted state oil company Pemex to shut down four offshore production platforms and close six wells at a natural gas field.
Traders are also awaiting the release of the U.S. Energy Information Administration's weekly inventory data on Wednesday. Analysts polled by Reuters anticipated a 2.3-million-barrel build in crude inventories as imports rebounded from storm disruptions.
(Additional reporting by Alex Lawler and Jane Merriman in London and Annika Breidthardt in Singapore; Editing by Christian Wiessner)