Oil above $74 as OPEC eyes two cuts

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Oil above $74 as OPEC eyes two cuts

OPEC president says oil is oversupplied by about 2 million barrels per day, considers supply reductions in November and December.

October 21, 2008: 5:49 AM ET

SINGAPORE (AP) -- Oil prices rose above $74 a barrel Tuesday in Asia as investors expected OPEC to try to halt a three-month slide in prices by cutting production quotas at least 1 million barrels a day.

Light, sweet crude for November delivery rose 55 cents to $74.80 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore, after reaching as high as $75.69 earlier in the session.

The contract gained overnight $2.40 to settle at $74.25. Prices closed as low as $69.85 a barrel last week, down 53% from a record $147.27 on July 11.

"It definitely looks like a cut is in the cards," said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore. "A cut of at least 1 million has been priced in. A cut much larger than 1 million could move prices higher."

The Organization of Petroleum Exporting Countries, which accounts for about 40% of global oil supply, plans to announce an output reduction at a meeting on Oct. 24 at its headquarters in Vienna, said the group's president, Chakib Khelil.

Khelil has said OPEC may cut output again at a meeting in December, and that the group considers the oil market oversupplied by about 2 million barrels a day.

Investors are also keeping a close eye on whether non-OPEC producers, such as Russia, will reduce supply as analysts lower price expectations for next year. Deutsche Bank on Monday cut its 2009 oil price forecast to $60 a barrel from $92 and predicted $57.50 for 2010.

"Producers are getting concerned about this downward spiral in pricing since the summer," Shum said. "Some governments have based their budgets higher than current prices."

Rising global stock markets have also supported prices this week. Federal Reserve Chairman Ben Bernanke told the House Budget Committee on Monday that a fresh round of government measures might help ease the country's economic weakness.

There were also signs of a reviving credit market as bank-to-bank lending rates eased further. Stock indexes across Asia rose Tuesday, with Japan's benchmark Nikkei 225 stock average up 3.3%. The Dow Jones industrials average rose 4.7% Monday.

"Lately oil has traded in sync with equities as traders look to equity markets for indications of the macro-economic outlook," Shum said.

In other Nymex trading, heating oil futures rose 1.60 cents to $2.23 a gallon, while gasoline prices gained 1.0 cents to $1.73 a gallon. Natural gas for November delivery jumped 4.8 cents to $6.79 per 1,000 cubic feet. In London, November Brent crude was down 16 cents to $72.87 a barrel on the ICE Futures exchange.