Bloomberg News

Crude Oil Advances Amid Speculation OPEC May Reduce Production

June 29, 2011

June 29 (Bloomberg) -- Oil rose in New York, extending the biggest gain in six weeks, amid concern OPEC may reduce output in response to the International Energy Agency’s move to release oil stockpiles.

Futures advanced as much as 1.5 percent after rallying 2.5 percent yesterday. The IEA’s plan to release strategic reserves sparked speculation that the Organization of Petroleum Exporting Countries may limit output. A U.S. report today may show crude stockpiles fell more than forecast last week, and Greece’s parliament will vote on a plan to cut spending and sell assets.

“If IEA countries are releasing stockpiles Saudi Arabia won’t increase production as much as expected,” said Hannes Loacker, an analyst at Raiffeisen Zentralbank Oesterreich in Vienna. “Markets are looking at a positive outcome in Greece.”

Crude for August delivery rose as much as $1.41 to $94.30 a barrel in electronic trading on the New York Mercantile Exchange and was at $93.82 at 12:58 p.m. London time. Yesterday, the contract climbed 2.5 percent to $92.89, the biggest one-day gain since May 18. Prices are up 2.7 percent so far this year.

Brent oil for August settlement on the London-based ICE Futures Europe exchange was at $109.88 a barrel, up 1.1 percent. The European benchmark contract was at a premium of $16.06 to U.S. futures.

Quarterly Decline

Oil is headed for the first quarterly decline in a year after Europe’s debt crisis bolstered speculation fuel demand will be reduced. New York futures are down 12 percent from the end of March, the worst second quarter since 1990. Brent has lost 6.3 percent.

U.S. crude inventories were forecast to have dropped 1.5 million barrels in the week ended June 24 from 363.8 million, according to the median estimate of 12 analysts surveyed by Bloomberg News. Refiners probably maintained operating rates at a 10-month high of 89.2 percent of capacity as they boosted gasoline production before the Fourth of July holiday.

The Energy Department will release its Weekly Petroleum Status Report at 10:30 a.m. in Washington. Yesterday, the industry-funded American Petroleum Institute said in a separate report that crude stockpiles slipped 2.7 million barrels to 360.3 million, the lowest in 10 weeks.

“There are concerns Saudi Arabia will cut production” in response to the IEA move, said Roland Stenzel, an oil trader at E&T Energie Handelsgesellschaft mbH, said from Vienna.

The London-based al-Hayat newspaper reported on June 10, two days after OPEC’s last meeting, that Saudi Arabia would increase output to 10 million barrels a day. It produced 8.9 million barrels in May, according to Bloomberg estimates.

Tropical Storm

The first tropical storm of the Atlantic hurricane season, Arlene, may lead to the closure of Mexican oil ports, Eugen Weinberg, Frankfurt-based head of commodities research at Commerzbank AG, wrote in a report today.

Mexico is the second-biggest oil exporter to the U.S. and supplied 1.19 million barrels a day in March, the last month for which Energy Department data are available. Petroleos Mexicanos, Mexico’s state-owned oil company and Latin America’s largest producer, has wells in the Bay of Campeche, south of the storm.

Arlene is moving west-northwest at 8 miles (13 kilometers) per hour, with a turn toward the west forecast today, the center said in a bulletin at about 4 a.m. New York time. The storm is packing maximum sustained winds near 40 mph, less than the 74- mph threshold for hurricanes.

Oil in New York settled higher than two technical- resistance levels yesterday, signaling the market may extend gains. Futures climbed above a Fibonacci retracement level at $92.79 a barrel and the 200-day moving average, which is at $92.90 today, according to data compiled by Bloomberg.

--With assistance from Yee Kai Pin in Singapore and Ben Sharples in Melbourne. Editors: John Buckley, Alessandro Vitelli

To contact the reporter on this story: Rachel Graham in London rgraham13@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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