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Oil extends gains to above $68

Oil climbed further to above $68 a barrel, buoyed by expectations OPEC would announce oil output cuts at an emergency meeting later in the day.

business Updated: Oct 24, 2008 08:51 IST
Fayen Wong

Oil climbed further to above $68 a barrel, buoyed by expectations OPEC would announce oil output cuts at an emergency meeting later in the day to shore up prices that were languishing at 16-month lows.

OPEC ministers, anxious to arrest a deep price slide and yet cushion a bruised economy, said on Thursday they had agreed they must cut output, but had not decided by how much.

Analysts polled by Reuters anticipate the cartel will reduce output by between 1 million and 1.5 million barrels per day.

US light crude for December delivery was trading up 66 cents or 1 percent at $68.50 a barrel in Globex electronic trading by 0230 GMT, after rising as much as $1.66 earlier, adding to Thursday's gains of $1.09.

London Brent crude rose 61 cents to $66.53.

"The oil markets are now focused on the outcome of the upcoming OPEC meeting. Statements from OPEC officials indicate that OPEC is likely to cut oil production targets, but the size of the cut is uncertain," David Moore, a commodity strategist at the Commonwealth Bank of Australia, said in a note to clients.

Oil has plunged more than 50 percent from its record high above $147 in July and touched a 16-month low of $65.90 on Thursday as the financial crisis eats into energy demand in the United States and other industrial countries.

OPEC President Chakib Khelil of Algeria said on Thursday the producer group could consider cutting back its oil output in several steps and added that he favours OPEC's reference crude oil basket price at $90 to ensure energy projects go ahead.

Iran suggested on Thursday that a 2 million bpd cut would be needed to stabilise oil prices, while Qatar said at least a 1 million bpd reduction was required.

But analysts said the slowing global economy could limit the impact of any oil supply cuts OPEC might agree on to prop up prices and that oil markets would remain influenced by deleveraging and risk aversion.

"Extreme risk aversion remains at the top of the market agenda in the current cyclical downturn," Harry Tchilinguirian, a senior oil market analyst at BNP Paribas Commodity Derivatives in London, said in a research note.

Bleak outlooks from world car makers and a barrage of job cuts by major US companies, including Chrysler and Xerox, have deepened fears of an extended global recession and kept the market on edge.

Asian stocks fell on Friday, led by a 4 per cent drop in Japan's Nikkei average, as the global economic slowdown slashed earnings prospects for an array of companies, forcing investors to look to safer government bonds.

The grip of the financial crisis has reached far beyond the banking sector, with electronics maker Sony Corp and US online retailer Amazon.com Inc cutting their outlooks in the face of weakening consumer demand.

The number of US workers filing new claims for jobless benefits also rose by a larger-than-expected 15,000 last week, government data on Thursday showed.