Signs of OPEC Cut Boost Oil Prices

Crude oil had its biggest gain in more than a year Wednesday, on more signs that major oil producers are serious about reducing production to deal with slowing world demand.

Expectations of colder temperatures in the Eastern U.S. in January also boosted energy futures in general. But trading was thin the day after Christmas, so some analysts cautioned against making too much of the day’s gains.

In New York, near-term crude oil futures closed at $21.27 a barrel, up $1.65 from Friday’s close of $19.62 a barrel and the highest since Nov. 13. Energy futures did not trade Monday or Tuesday.

Near-term heating oil futures also were sharply higher, rising 4.62 cents to 59.5 cents a gallon. Natural gas futures, however, were up only fractionally.

Oil prices have plunged this year as the global economy has weakened. The slide has pulled gasoline pump prices below $1 a gallon for the first time in more than two years.

Seeking to boost crude prices, ministers of the Organization of the Petroleum Exporting Countries will meet Friday in Cairo to decide whether to cut daily output quotas by 1.5 million barrels, to a 10-year low. Such a reduction has been contingent on cuts by non-OPEC exporters, who so far have pledged reductions of about 460,000 barrels a day.

Saudi Oil Minister Ali Ibrahim Naimi said Wednesday in Cairo that OPEC reductions were a 100% certainty, Dow Jones Newswires reported. His comments seemed to put to rest the threat of a price battle between OPEC and non-OPEC producers. OPEC produces about 40% of the world’s crude oil.

“Even though non-OPEC producers came up short of the 500,000 barrels that OPEC wanted from them, their efforts brought them close enough, so we don’t expect the cartel to quibble,” said Michael Fitzpatrick, a broker at Fimat USA Inc. in New York. “By the time we get to work on Friday, there will most likely be an agreement to cut 2 million barrels” in all.

Still, whether that will be enough to drive crude prices higher, and keep them up, will depend on whether producers stick to their output agreement--and whether the global economy quickly recovers from the recession, analysts say.

Given the weak economy, the International Energy Agency predicts a rise in world demand next year of 600,000 barrels a day--two-thirds the average annual gain during the 1990s.