Crude oil rose almost 4 percent after Saudi Arabia, Algeria and Nigeria indicated that OPEC may reduce production as soon as August.
OPEC members began to consider trimming output for the third time this year after an economic slowdown reduced demand and sent oil prices down 17 percent in the past five weeks. OPEC Secretary- General Ali Rodriguez said in Bonn that a reduction was likely before OPEC's scheduled Sept. 26 meeting.
"It's nearly certain that they will enact a cut in August, but low demand means there will still be pressure on prices," said Mordechai Abir, director of energy and geo-political research at Hoenig & Co in New York. "They don't even have to meet. They could speak on the phone and decide to cut production."
Crude oil for August delivery rose US$0.89, or 3.6 percent, to US$25.59 a barrel on the New York Mercantile Exchange. Prices have fallen 3.8 percent this week. The August contract expired on Friday. The more active September futures contract rose US$1.16, or 4.7 percent, to US$25.94.
In London, Brent crude oil for September settlement rose US$0.59, or 2.5 percent, to US$24.64 a barrel on the International Petroleum Exchange.
Oil company shares were higher in afternoon trading. Chevron Corp gained US$2.03 to US$89.18 and Texaco Inc rose US$0.182 to US$67.32. Exxon Mobil Corp., the largest publicly traded oil company, was up US$0.30 at US$43.38. Oil company shares and crude oil prices have tended to move in tandem over the past few months.
OPEC, which pumps 40 percent of the world's oil, has already reduced production quotas twice this year to bolster prices. The group's benchmark oil price was US$22.78 a barrel yesterday, close to the bottom of OPEC's US$22 to US$28-a-barrel target range. The so-called basket price was US$27.49 on June 11.
"All sources of information lead us to believe that we are heading for a crisis," Saudi Arabian Oil Minister Ali al-Naimi told a news conference in Bonn, where officials are meeting for talks on global warming. "We will definitely do what is necessary to maintain the band and our target price." Saudi Arabia is the biggest oil producer and most influential OPEC member.
OPEC President and Algerian Oil Minister Chakib Khelil cited "weakness of demand and very high stocks," as reasons why OPEC should consider trimming output, the country's official press agency reported. Rilwanu Lukman, the OPEC representative for Nigeria, said the group would trim supplies by "the amount necessary" to maintain a balance between supply and demand.
"The first stage in the defense of the price is to talk cuts, and if that doesn't work, the second stage is to actually cut production," said Steve Turner, an oil analyst at Commerzbank AG. in London.
Talk of curtailing production gained momentum a week ago, when the International Energy Agency said world oil demand will rise this year at its slowest rate since the Asian economic crisis of 1997 and 1998.
"If they choose to cut by a million barrels a day, the speculators on the Nymex will rush in, but the increase in prices wouldn't last," Abir said. "Demand is falling, other producers have increased output and cheating would probably increase."
The energy agency, an adviser to 26 industrialized countries also forecast that daily supply from Russia and other non-OPEC nations this year will rise by 590,000 barrels to 46.43 million, and by 730,000 barrels daily to 47.16 million barrels in 2002, almost meeting next year's expected increase in world demand.
"They are playing right into the competitors' hands," Abir said.
"They would lose market share to producers like Russia or the Caspian Sea nations."
Gasoline for August delivery rose US$0.217, or 3.1 percent, to US$0.7238 a gallon on the Nymex. Futures, which represent wholesale prices, have fallen 1.4 percent this week and closed at an 18-month low yesterday.
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