NEW YORK, Oct 20, (Agencies): Oil rose $2 on Monday on expectations Opec will cut output this week to prop up prices hard hit by slumping demand and the mounting financial crisis. Opec ministers were expected to cut output at an emergency meeting set for Friday. The debate on how much oil they should take off global markets could be intense as they balance their price needs against risks to a fragile world economy. US crude CLc1> rose $2.12 at $73.97 a barrel by 12:34 pm EDT (1634 GMT), while London Brent crude LCOc1> traded up $2.06 to $71.66 a barrel. “(Crude rose) after comments by several Opec members over the weekend made it apparent that a production cut of at least 1 million (bpd) is the likely result of the extraordinary meeting,” Addison Armstrong, analyst at Tradition Energy, wrote in a research note.
Opec President Chekib Khelil and officials from Iran and Qatar have called on the group to reduce output after prices dropped from a record over $147 a barrel in July on slowing demand in developed economies like the United States. Khelil on Monday said non-Opec oil producers like Russia, Norway and Mexico also should cut production to help stabilise sagging prices. He said that if oil prices fell below $70 a barrel, many oil projects internationally “will be delayed or die.”
Rebound
The International Energy Agency, which advises industrialized countries, said an Opec output cut could hinder a global economic rebound.
“The IEA is concerned (an Opec cut) might have a negative impact on the global economic recovery,” said Nobuo Tanaka, the IEA executive director.
The growing financial crisis, as well as high fuel costs earlier this year, had weighed on oil consumption.
Economic growth in China, the world’s No. 2 oil consumer and a key driver in crude’s six year rally, slowed to 9.0 percent in the third quarter due to the global credit crisis and a weak property sector, leaving the economy on course for its first year of single-digit expansion since 2002.
“We expect energy and industrial metals prices will be the major casualties in this environment,” Deutsche Bank said in a research note.
“We expect the oil price to fall to $50 a barrel by the end of next year,” it said. “History would suggest that Opec will struggle to defend oil prices in an environment where world GDP growth falls below 2 percent, as occurred in 1998 and 2001.” US Federal Reserve Chairman Ben Bernanke told Congress another wave of government spending may be needed as the economy limps through what could be an extended period of subpar growth.
Interbank lending emerged from deep freeze and Fed chairman Ben Bernanke gave his blessing to a second US government stimulus package on Monday, providing hope the world’s financial crisis may be easing.
Sign
The three-month Libor rate fell more than one-third of a percentage point, its biggest one-day drop in nine months in one sign that banks may have the confidence to lend to each other again.
US stocks gained further on the prospect of another government boost to taxpayers similar to one this summer when the Treasury sent out $100 billion of checks to jump-start the economy. European stocks meanwhile fared well as banks there prepared to make use of state rescue packages.
Opec member Libya on Monday said it was in favour of a production cut of more than one million barrels of oil per day ahead of a cartel meeting later this week.
The Organisation of Petroleum Exporting Countries is due to hold a special meeting on Friday at its headquarters in Vienna to announce production cuts amid falling oil prices.
“A cut in production by one million barrels per day is not enough to re-establish equilibirum on the market,” Oil Minister Shukri Ghanem told AFP.
“One million (barrels per day) is little. Offer exceeds demand by much more than one millon barrels per day,” Ghanem said.
The Libyan oil minister also said he was opposed to production cuts in stages.
“Different figures (for the size of cuts) are being talked about among Opec members,” Mohammad Ali Khatibi was quoted as saying by the official IRNA news agency, adding that suggestions range from one to three million barrels a day. “If three million barrels are cut at one time from Opec’s production, the market will recover, but there is a possibility that this cut will occur in a number of stages and it appears that Opec is ready to cut a million barrels per day in the first stage,” he added.
Qatar’s Energy Minister Abdullah bin Hamad al-Attiyah predicted on Friday that Opec will cut oil output by at least one million barrels a day.
Oil prices had reached a peak of $147 a barrel earlier this year but slumped below $70 on Thursday for the first time in more than a year, dragged down by prospects for reduced demand in the face of a global economic slowdown brought on by the world financial turmoil.
Meanwhile, Iran, Opec’s No. 2 producer, said on Monday it was possible the group would cut output in stages in response to falling oil prices, starting with a cut of 1 million barrels per day, the official IRNA news agency reported.
Iran’s Opec governor, Mohammad Ali Khatibi, also said Opec could invite other non-Opec states to participate in reducing output but said the group could not afford to wait for such an agreement before taking its own action.
Tumbled
He was speaking ahead of a meeting of the Organization of the Petroleum Exporting Countries on Friday in Vienna, amid mounting pressure within Opec for a production cut.
Oil prices have tumbled to half their July peak of $147 a barrel. They were last trading on Monday around $73 a barrel.
“If we suddenly lower Opec’s production by 3 million bpd then the market will contract strongly but there is this possibility that the reduction will take place in a few stages,” Khatibi told IRNA.
“It seems that in the first stage, Opec is prepared to lower its output by 1 million bpd,” he said.
World demand for crude had fallen by 2 million bpd, he said without specifying a time period for this drop. “The unexpected drop in the price of oil was more than we imagined,” he said, according to a report carried by Fars News Agency. “Iran’s policy in Opec’s meeting this week will be a reduction in oil oversupply.”
Oil Minister Gholamhossein Nozari has also said Iran would seek a cut in output when the group meets. Asked if non-Opec would be asked to join in any production cuts, Khatibi said in his comments to IRNA: “The possibility of this invitation exists, but if we wanted to wait for non-Opec producers and come to an agreement, the prices would be damaged strongly.” Oil producers outside the group have in the past coordinated with Opec on reducing output. Opec had planned an emergency meeting in November, but brought that forward to this month because of falling oil prices. Khatibi suggested the group might meet more frequently.
“In view of the oil market’s existing conditions, there is a possibility for holding other emergency meetings with shorter intervals to study the oil market situation and arrive at decisions,” he said.
A cut in Opec oil output, suggested by some in the group ahead of its Friday meeting, may hurt global economic recovery, the International Energy Agency’s head said on Monday. “The IEA is concerned (an Opec cut) might have a negative impact on the global economic recovery,” IEA Executive Director Nobuo Tanaka told a news conference. He said a global economic slowdown would be prolonged if crude prices jumped higher as a result of an Opec cutback.