Oil Prices Hit 4-Month High Amid Supply Curbs

U.S. oil prices shot to a four-month high Friday as OPEC producers said they would keep the lid on supply for the rest of the year.

Near-term crude futures on the New York Mercantile Exchange jumped 66 cents to $22.40 a barrel, its highest level since mid-October and a gain of more than 25% in the last six weeks. Gasoline prices rose in tandem, rising for the eighth week in a row and pushing their year-to-date increase to 35%.

The latest push came after OPEC Secretary-General Ali Rodriguez said he saw the cartel maintaining stringent output curbs for the rest of the year, and that OPEC wanted prices at least 10% above current levels.

OPEC has joined with five other leading exporters to pledge supply cuts of nearly 2 million barrels a day this year, a move that is cutting into supplies built up during last year’s economic slowdown.

“This market will go into overdrive if they don’t raise production in the second half of the year,” said Paul Horsnell of J.P. Morgan.

Tight OPEC supply curbs pushed U.S. crude prices to post-Persian Gulf War highs of more than $37 a barrel in 2000, before a downturn in demand last year sent prices crashing back to less than $17 a barrel.

The Organization of the Petroleum Exporting Countries already has committed to keep supply curbs for the first half of this year, and will seek to persuade Russia--which had pledged to cut output for the first quarter--to join for the full six months.

The cartel is particularly keen to stop supplies building during the second quarter after winter heating fuel consumption peaks and before driving demand picks up during the summer.

Oil prices already were heading up on news that the U.S. economy grew faster than first thought in the fourth quarter, reinforcing recent signs that fuel demand is emerging from the doldrums.

Gasoline consumption in the last month has averaged 8.4 million barrels a day, 2.5% above last year, bolstered by heavy sales of gas-guzzling sport-utility vehicles, warm winter weather and lower prices at the pump.

U.S. refiners also have reduced supply to counter weak prices. The Energy Information Administration on Wednesday showed total U.S. oil inventories falling 0.6% last week to 1 billion barrels.

Additional price gains have come from nagging worries about possible disruption to supply from key Middle East producer Iraq, which accounts for about 5% of global oil exports. Traders fear Iraq--branded as part of a global “axis of evil” by President Bush--could become the next target of U.S. reprisals for terrorist attacks.

Meanwhile, gasoline prices in Southern California rose for the eighth consecutive week as crude prices rose and refineries began preparing reformulated fuel for the summer, according to a survey released Friday.

Since Jan. 1, average gas prices in the Los Angeles-Long Beach area have climbed 34 cents to $1.34 a gallon, the Automobile Club of Southern California said.

The surplus created by weak consumer demand that helped send gasoline prices down to about 99 cents a gallon in December has largely vanished as refineries slowed production.