Oil Rises to Three-Week High


Crude oil rose to a three-week high on speculation that the conflict in the Gaza Strip may spread and disrupt oil supplies from other parts of the Middle East, and on signs that OPEC production cuts are being implemented.

Oil gained as Israeli warplanes bombarded Palestinian targets and thousands of soldiers moved into Gaza late on Jan. 3. OPEC is likely to make all the output cuts promised at its last meeting, causing global stockpiles to fall this quarter, an official from a Persian Gulf member of the group said.

Oil for February delivery rose $1.98, or 4.2 percent, to $48.32 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. The contract touched $49.28 a barrel, the highest since Dec. 15.

Full implementation of OPEC’s 4.2 million-barrel-a-day reduction in supplies will send inventories below their five-year average, said the official with direct knowledge of OPEC’s deliberations, declining to be identified by name because he isn’t authorized to speak publicly. It’s unlikely the group will convene before its scheduled meeting on March 15, he said.

The cutback is from OPEC’s September production levels and includes a reduction that took effect Nov. 1. The group agreed to a record cut of 2.46 million barrels a day at a meeting in Oran, Algeria, on Dec. 17. OPEC produces more than 40 percent of the world’s oil.

Morse said the fair-market price for crude was in the upper $30s or low $40s,” as he anticipates persistent fundamental weakness” and persistent commercial stock builds” in January.

Crude fell earlier as the U.S. dollar rose to a three-week high against the euro, reducing the appeal of commodities as a hedge. The currency moved on speculation that President-elect Barack Obama’s fiscal stimulus package will help the U.S. economy recover from a recession.

Prices also dropped as traders sold contracts after a 31 percent rally in the previous five sessions.

Saudi Arabian Oil Co., the world’s largest state-owned oil company, raised the official selling prices for shipments of so- called heavy crude grades for February.

The company increased the prices for all of its grades to the U.S., according to a statement from its headquarters in Dhahran. Saudi Aramco, as the company is known, increased the price of its Arab Medium and Arab Heavy types to Asia and Europe. The price for its so-called lighter grades was left unchanged or reduced for shipments to Europe and Asia.

Venezuelan President Hugo Chavez said today that OPEC countries are very united” and that Russia, the second-largest oil producer after Saudi Arabia, is working with the 12-member organization in its effort to support prices.

Oil climbed 23 percent last week, the most since August 1986, buoyed by the Gaza conflict, a natural gas dispute between Russia and Ukraine, and a rebound in equity prices. Futures tumbled 27 percent the week before.

Obama’s economic stimulus package will include hundreds of billions of dollars worth of tax breaks for individuals and businesses, according to a transition official and Democratic aides.

Obama is asking that tax cuts make up 40 percent of a stimulus package, the people say. The measure may be worth as much as $775 billion, a Democratic aide says, meaning tax cuts may constitute more than $300 billion of the legislation.

Brent crude oil for February settlement added $2.23, or 4.8 percent, to $49.14 a barrel on London’s ICE Futures Europe exchange. It touched $50.05 a barrel, the highest since Dec. 1.

 


TradingEconomics.com, Bloomberg
1/5/2009 1:20:56 PM