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Crude oil rises on signs that supplies will be cut

Crude oil rose to a two-month high on reports that OPEC members and rival producers are beginning to make promised output cuts in an effort to boost prices during a recession.

Iran, OPEC's second-largest producer, has trimmed oil production by 10 percent, AFP reported. Non-OPEC Mexico announced an export reduction on Wednesday. OPEC reduced daily output quotas by 1.5 million barrels starting this month after other exporters pledged cuts of 462,500 barrels a day.

"The early signs are that they will make cuts and try to adhere to the new quotas," said Phil Flynn, a senior energy trader at Alaron Trading Corp in Chicago. "For the first couple months of this year there will be substantial cuts" from OPEC and non-OPEC producers.

Crude oil for February delivery rose US$1.25, or 6.1 percent, to US$21.62 a barrel on the New York Mercantile Exchange, the highest closing price since Nov. 13. Prices gained 5.9 percent this week, the biggest rise since the week ended Nov. 9. Oil prices are still 23 percent lower than at this time last year, as recession in the biggest consuming nations eats into energy demand.

In London, Brent crude oil for February settlement rose US$1.52, or 7.4 percent, to US$22.18 a barrel on the International Petroleum Exchange, the highest closing price for a most-active contract since Oct. 11.

OPEC reduced its output target to a 10-year low at a meeting in Cairo last week in response to falling prices. Because of slowing economies and the ripple effect from the Sept. 11 attacks on the US, oil demand is rising at its slowest rate since 1984.

"We have cut production by 10 percent, bringing it down to 3.186 million barrels per day," Iranian oil ministry adviser Hojatollah Ghanimifard said, the daily Hamshahri newspaper reported, according to the French news agency.

Mexico has set a ceiling of 1.66 million barrels a day for exports, down from an average of 1.71 million barrels a day in the first 11 months of last year, the energy ministry said.

Top OPEC producer Saudi Arabia this week informed buyers in Japan and Korea, the second and fifth-biggest consumers, that they would receive 80 percent of contracted oil shipments in January, down from 83 percent for December. Kuwait and Abu Dhabi also lowered their January allocations.
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