Oil Rebounds After 10% Drop as OPEC May Act to Support Prices

March 3 (Bloomberg) -- Oil gained, after dropping 10 percent yesterday, on speculation OPEC may take further steps to support prices at its meeting later this month.

The Organization of Petroleum Exporting Countries, implementing its biggest-ever supply cut, will devise a “solution” to boost oil prices when it meets on March 15, Iran’s oil minister said. The group supplies 41 percent of the world’s oil. Royal Dutch Shell Plc said it shut some production in Nigeria after a pipeline was attacked over the weekend.

“OPEC will try to chat this market up the best they can, but it’s still probably a month or two away from these production cuts having any bite,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois, energy consultant. He forecast OPEC may cut another 500,000 barrels to 1 million barrels a day at its meeting.

Crude oil for April delivery rose $1.50, or 3.7 percent, to settle at $41.65 a barrel at 2:45 p.m. on the New York Mercantile Exchange. The price has fallen 59 percent in the past 12 months.

Yesterday, futures plunged $4.61 to $40.15 a barrel, the biggest one-day drop since Jan. 7, after global equity markets slumped on reports of manufacturing declines in China and the U.S. Prices are down 6.6 percent so far this year.

OPEC members “will review the situation of the market on March 15 in Vienna and introduce a new solution to improve oil prices,” Iran’s oil minister, Gholamhossein Nozari, told the official Islamic Republic News Agency.

OPEC cut output by 2.7 percent in February as producers tried to stem price declines, a Bloomberg News survey showed.

Production from the 12-member group averaged 27.775 million barrels a day last month, down 770,000 from January, according to the survey of oil companies, producers and analysts. Output in January was revised 20,000 barrels a day lower.

$40 Floor

“Even with the economic deterioration that triggered yesterday’s selloff, $40 is so far proving to be a floor,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. “The combination of OPEC production cuts and colder weather is tightening the market and giving support.”

Earlier today, crude fell below $40 a barrel in New York as equities declined following remarks by U.S. Federal Reserve Chairman Ben S. Bernanke. The Fed chief said policy makers may need to provide more aid to the banking system beyond $700 billion already approved and take other measures to restore financial stability.

Crude oil volume in electronic trading on the exchange was 384,821 contracts as of 3:12 p.m. in New York. Volume totaled 433,678 contracts yesterday, the lowest since Jan. 30 and 19 percent below the three-month average. Open interest was 1.19 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.

Economy

“The economy is still the major factor, with unemployment going up and more and more companies going out of business, banks as well,” said Mike Sander, an investment adviser at Sander Capital Advisors Inc. in Seattle. “Unless people are going to consume gasoline and unless industries are going to use energy, that’s weighing on the market.”

Gasoline for April delivery rose 3.32 cents, or 2.6 percent, to $1.3194 a gallon on the Nymex. Heating oil for April delivery added $2.84, or 2.5 percent, to $1.1796 a gallon.

U.S. oil supplies probably rose last week as imports climbed and refineries ramped up operating rates, a Bloomberg News survey showed.

Crude-oil stockpiles increased 1 million barrels in the week ended Feb. 27 from 351.3 million the week before, according to the median of 12 estimates by analysts. The Energy Department is scheduled to release its weekly report at 10:30 a.m. tomorrow in Washington.

API Inventories

The industry-funded American Petroleum Institute said supplies fell 463,000 barrels to 345.7 million barrels a day last week, in a report that was released at 4:30 p.m. in Washington.

“With OPEC cutting and the refiners operating at low levels, any builds that we’re seeing are really indicating poor demand,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore.

Refineries probably operated at 81.4 percent of capacity, little changed from the week before, the survey showed.

Gasoline stockpiles probably dropped 550,000 barrels from 215.3 million in the prior week, according to the survey. Supplies of distillate fuel, a category that includes heating oil and diesel, probably fell 1 million barrels from 141.6 million.

OPEC “will likely” reduce supplies to support prices, Algerian Oil Minister Chakib Khelil said in an interview in Madrid yesterday.

OPEC members have reached almost 100 percent compliance with existing cuts at the end of February, Khelil said. Today’s Bloomberg survey showed the 11 OPEC members with output quotas, all except Iraq, produced 545,000 barrels a day above the target of 24.845 million barrels a day. The countries pumping the most over their targets were Iran, Angola and Libya.

Brent crude oil for April settlement rose $1.49, or 3.5 percent, to $43.70 a barrel on London’s ICE Futures Europe exchange. It declined 8.9 percent yesterday.