Font Size

- Aa +

Fri 23 Jan 2009 04:20 PM

Font Size

- Aa +

Oil pares initial losses on OPEC output cut survey

Crude price falls below $42 a barrel before rebounding on 1.55mn bpd reduction.

Oil fell below $43 on Friday, but pared some initial losses after a survey showed OPEC cut supplies sharply in January.

The market had staged a brief rally late on Thursday prompted by early action from the Obama administration to revive the US economy.

US light crude for March delivery fell 92 cents to $42.75 a barrel by 3.40pm UAE time, after a session low of $41.93. Prices have rallied from below $33 a barrel earlier in the week.

London Brent crude was 59 cents lower at $44.80 a barrel.

Prices bounced from near the session's lows after consultant Petrologistics showed the Organization of the Petroleum Exporting Countries is sticking to its pledge to reduce output.

OPEC supply, excluding Iraq, is expected to fall by 1.55 million barrels per day (bpd) in January, Petrologistics said.

The reduction follows OPEC's agreement in December to cut output by 2.2 million bpd from Jan. 1, making total supply cuts of 4.2 million bpd since September, equal to 5 percent of daily world energy demand.

But OPEC might need to reduce output again to support prices because global demand looks set to remain weak.

"We continue to believe that weak economic growth is likely to have a much greater impact on oil demand growth than is currently factored into consensus supply and demand forecasts," Deutsche Bank analyst Adam Sieminski said in a research note.

"We expect OPEC will have to agree to make one more quota cut at their March meeting, chasing the moving target of oil demand," he said.

Oil dropped sharply at one stage on Thursday after a surprisingly large rise in crude oil stocks in top oil consumer the United States last week.

"The oil inventory numbers caused some surprise. Wednesday's rally has been put on hold as traders see the excess supply problem not going away until at least the second half of 2009," said Jonathan Kornafel, Asia Director of Hudson Capital Energy, a US-based options house.

US crude inventories rose by 6.1 million barrels last week, well above forecasts for a 1.4 million barrel rise, and leaving them more than 40 million barrels above year-ago levels.

Oil prices have lost more than $100 a barrel in the past six months as a financial crisis has tipped the world into recession that has reduced demand for oil.

Latest UK government data showed Britain went into recession at the end of last year for the first time since 1991, providing further evidence of the severity of the downturn.

European shares fell to a six-year low, depressed partly by the UK economic data and weakness in energy and financial stocks. (Reuters)

For all the latest energy and oil news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.