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Fri 26 Dec 2008 11:33 AM

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Oil price rises after UAE, Saudi agree output cuts

Price back above $36 after ADNOC announces cuts of 10-15% on main export grades.

Oil rose above $36 on Friday, after the UAE joined Saudi Arabia in deepening supply curbs to comply with OPEC's biggest-ever crude output cut last week.

Abu Dhabi National Oil Co (ADNOC), the main producer in the UAE, the world's fifth-largest oil exporter, said it will cut supplies of February Murban and Upper Zakum allocations by 15 percent and Lower Zakum and Umm Shaif by 10 percent each, in line with OPEC supply curbs.

These are the deepest cuts since it started lowering allocations in November.

Crude for February delivery jumped 90 cents to $36.25 a barrel by 10.39am UAE time, after rising more than $1 to as high as $36.46 earlier. It settled down 9.3 percent, or $3.63, on Wednesday, not far off the more than four and a half year low struck a week ago.

London Brent crude rose 52 cents to $37.13. Markets were closed on Thursday for Christmas Day.

Oil has fallen about $110 a barrel since its mid-July peak, as the global financial crisis bit into fuel demand, spurring OPEC producers to cut 5 percent of world oil production to stem the slide.

ADNOC had earlier cut allocations for January oil exports of Murban crude by 15 percent below normal contractual supplies, while Upper Zakum will be cut by 3 percent from the norm and told refiners it would stiffen shipping limits on exports of its main grades.

A source with an Asian refiner said the ADNOC cuts were more than expected.

"ADNOC had already allocated January volumes, but they reversed the decision, so that messes up our schedule," the source said. "For February, the reduction volumes are very large, so we may need to adjust our ship loadings."

Analysts and refiners said the notice was hard evidence that one of OPEC's core members was implementing its share of the group's agreed 2.2 million barrels per day (bpd) production cut, giving relief to an oil price that had been undermined by worries about adherence to OPEC's cuts.

OPEC may call an emergency meeting before March if prices extend their slide, President Chakib Khelil said on Tuesday.

Oil tumbled on Wednesday on news that US jobless claims had risen to a 26-year high and consumers had cut spending for the fifth consecutive month in November, reinforcing expectations of a prolonged slowdown in energy consumption.

A US Energy Information Administration report on Wednesday showed crude inventories dropped 3.1 million barrels last week, countering expectations of a 400,000-barrel rise. But dealers said larger-than-expected builds in US refined fuel supplies last week kept the outlook bearish.

Japan's deepening recession is expected to cut oil demand in the world's third-biggest oil consumer by almost 5 percent in the year starting April, after sliding 5.7 percent in the fiscal year ending next March, the Institute of Energy Economics, Japan, said this week.

In yet another sign that dull demand was hurting, a company source from China offshore oil specialist CNOOC Ltd said the firm was likely to scale down or delay some projects as slumping oil prices threatened to invalidate its previous oil economics.

Reliance Industries began processing crude on Thursday at a new 580,000-bpd refinery in western India, which would make it the world's single biggest supplier of fuels to world markets, just as global demand retreated. (Reuters)

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