Speculators ramping up oil again

Oil surges above $48 as traders eye OPEC output
By Moming Zhou & Polya Lesova, MarketWatch
Last update: 11:47 a.m. EDT March 9, 2009


NEW YORK (MarketWatch) -- Crude-oil futures rallied more than 5% Monday to above $48 a barrel, the highest level in more than three months, on speculation that the Organization of Petroleum Exporting Countries will further cut its production quotas.

OPEC is expected to lower its production at its meeting on March 15 in Vienna, analysts said. Meanwhile, the head of China's energy bureau said China should use part of its foreign-exchange reserves to buy more strategic commodities, such as oil.

Crude for April delivery was up $2.49, or 5.5%, at $48.01 a barrel in late morning trade on the New York Mercantile Exchange. It surged to $48.83 earlier. Front-month contracts haven't closed above $48 since Dec. 1.

"Crude-oil prices may be dictated by noise of further production cuts from OPEC nations this week, ahead of the meeting at the weekend," wrote Nimit Khamar, analyst at Sucden Financial Research. This could push crude toward $50 a barrel, he told clients.

"A sustained rally beyond there is unlikely, given large-scale risk aversion and concerns over the global economy," Khamar said.

OPEC has implemented a reduction in output of 4.2 million barrels a day since September, equivalent to about 5% of global oil demand.

OPEC Secretary General Abdalla el-Badri said Monday that oil prices at around $40 a barrel were not suitable because they would not guarantee investment in future capacity beyond 2013, according to energy information provider Platts.

Badri also said compliance with earlier production cuts was at 85%. He said the producers' group would study all options when ministers meet Sunday, though he declined to say whether a further production cut was being considered.

"The market's focus is now increasingly on supply," said analysts at Commerzbank in a research note. Regarding OPEC, "another cut in production quotas of up to 1 million barrels a day is not ruled out," the analysts said.

Edward Meir, an analyst at MF Global, said he expected OPEC to cut production by between 500,000 barrels and 1 million barrels a day.

Separately, the head of China's energy bureau said in an editorial published Monday that China should use part of its nearly $2 trillion in foreign-exchange reserves to buy more gold, oil, uranium and other strategic commodities.

The comments by Zhang Guobao, head of the National Energy Administration, appeared in China Reform Daily, a newspaper run by the government's National Development and Reform Commission.

Also in Nymex energy trading, April reformulated gasoline rose 1.8% to $1.3556 a gallon, and April heating oil gained 1.4% to $1.2471 a gallon.
However, natural gas for April delivery dropped 2.3% to $3.856 per million British thermal units.

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