Oil heads for fifth weekly gain on Saudi production cut

by on January 11, 2013 9:31 am GMT

Oil headed for its fifth weekly advance in New York, the longest run of gains since August, as Saudi Arabia cut production and investors speculated a global economic recovery will boost fuel demand.

Futures were little changed near their highest level in almost four months. Saudi Arabia, the world’s largest crude exporter, cut output in December to the lowest in 19 months, according to a Persian Gulf official with knowledge of the kingdom’s energy policy. Oil rose this week as Chinese exports accelerated, European Central Bank President Mario Draghi said the euro-area economy will gradually recover, and Japan announced a 10.3 trillion yen ($116 billion) stimulus package.

“The production cuts from Saudi Arabia will help to stabilize oil prices around current levels,” said Michael Poulsen, an analyst at Global Risk Management Ltd. in Middelfart, Denmark. “Fundamentals currently show a well- balanced market. Markets are waiting for an unknown trigger to send prices in either direction.”

West Texas Intermediate crude for February delivery was at $93.80 a barrel, down 2 cents, in electronic trading on the New York Mercantile Exchange at 8:36 a.m. London time. The contract increased 72 cents to $93.82 yesterday, the highest close since Sept. 18. Prices are up 0.8 percent this week.

Brent for February settlement on the London-based ICE Futures Europe exchange slid 24 cents to $111.65 a barrel. The European benchmark crude’s premium to WTI shrank to $17.60 a barrel, the narrowest gap since Sept. 25.

Saudi Output

Oil’s rally in New York may stall as a technical indicator shows futures have climbed too quickly for further gains to be sustainable, data compiled by Bloomberg show. The 14-day relative strength index rose above 70 today for the first time since Aug. 22, a level that typically signals prices will fall. On the weekly chart, crude is also approaching long-term resistance along its 100-week moving average around $94.93 a barrel. Futures yesterday breached the 50-week average.

Saudi Arabia’s production slid 4.9 percent to 9.025 million barrels a day last month as booming U.S. output and recovering shipments from Iraq threaten to oversupply the global oil market, the Persian Gulf person said, asking not to be identified because the information is confidential. The 465,000 barrel cut is the biggest monthly drop since November 2008, when the country and other members of the Organization of Petroleum Exporting Countries reduced supplies amid a global recession.

Economic Outlook

“With Saudi Arabia holding back on supply, the market has decided to push oil up,” said Jonathan Barratt, the chief executive officer of Barratt’s Bulletin, a commodity newsletter in Sydney. “If investors get behind the global recovery, then I think it can break through $95 a barrel.”

WTI may rise next week on optimism global economic growth will accelerate, according to a Bloomberg News survey of analysts and traders. Fourteen of 28 respondents, or 50 percent, said crude will advance through Jan. 18. Nine in the survey, or 32 percent, predicted a decline and five forecast little change.

Japan’s stimulus package announced today will increase gross domestic product by about 2 percentage points and create about 600,000 jobs, according to a statement released by the Cabinet Office. The country is the third-largest crude consumer, figures from BP Plc (BP/)’s Statistical Review of World Energy show.

Exports of goods by China, the second-biggest oil user, jumped 14 percent in December from a year earlier, exceeding the 5 percent median forecast in a Bloomberg survey, according to data yesterday from the customs agency in Beijing. The nation imported 271 million metric tons of crude last year, 6.8 percent more than in 2011, said the General Administration of Customs.