Oil prices go above $44 before OPEC meeting
Light, sweet crude for January delivery was up 65 cents to $44.25 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore.
The contract fell 91 cents overnight to settle at $43.60 despite signs the Organization of Petroleum Exporting Countries planned to announce a significant reduction of output quotas at its meeting Wednesday in Algeria.
Saudi oil minister Ali Naimi said Tuesday that OPEC, which accounts for about 40 percent of global supply, would likely cut production by about 2 million barrels per day.
The 13-nation oil cartel announced cuts totaling 2 million barrels a day in September and October, moves that have so far failed to stem a 70 percent drop in crude prices since July.
“You can’t take that much oil out of the market and not impact it,” said Gerard Rigby, energy analyst at Fuel First Consulting in Sydney. “If OPEC can keep its discipline, you’d expect these cuts to tighten the market.”
Investors may wait to see if OPEC follows through with any announced cuts before bidding prices higher, he added.
“OPEC has lacked credibility for a long time on discipline,” Rigby said. “OPEC is going to have to show they are committed to the cut, that it’s not just talk.”
If investors brush off another OPEC cut and continue to focus on weakening global crude demand, non-OPEC producers may join the cartel in lowering output.
“It could put pressure on Russia to make an announcement,” Rigby said. “If OPEC can get Russia to commit to a cut, that would definitely support the market.”
Investors will also be watching for signs of slowing U.S. demand in the weekly oil inventories report to be released Wednesday by the U.S. Energy Department’s Energy Information Administration.
The report is expected to show that oil stocks fell 900,000 barrels last week, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The Platts survey also projects that gasoline inventories rose 1.5 million barrels and distillates dropped 1.8 million barrels last week.
In other Nymex trading, gasoline futures rose 2.77 cents to $1.07 a gallon. Heating oil gained 2.21 cents to $1.48 a gallon while natural gas for January delivery jumped 4.9 cents to $5.80 per 1,000 cubic feet.
In London, January Brent crude rose $2.90 to $47.46 a barrel on the ICE Futures exchange.