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Oil prices higher on evidence of OPEC cuts

business Updated: Dec 29, 2008 09:01 IST

AFP
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Oil prices rose in Asian trade Monday on evidence that OPEC members have begun complying with agreed output cuts, rebounding slightly from four-year lows before the Christmas break.

New York's main contract, light sweet crude for February delivery, rose 1.69 dollars to 39.40 dollars a barrel, on top of a gain of 2.36 dollars to 37.71 in US trades on Friday.

Brent North Sea crude for February delivery rose 1.64 dollars to 40.01, after rising 1.76 dollars to 38.37 in London on Friday.

Analysts said the surge in prices was partly due to evidence that OPEC was cutting output as announced two weeks ago.

The Organisation of the Petroleum Exporting Countries (OPEC) is starting to notify customers about the extent of production cuts, said Dave Ernsberger, Asia senior editorial director of Platts, an energy information company.

"People are starting to see evidence on OPEC cuts," he said.

Ernsberger said the United Arab Emirates gave notice at the weekend of output cuts between three to 15 percent, an example that cartel nations are serious about reducing production.

OPEC's previous output cuts have often been met with only partial compliance. Ernsberger said that with many traders still on holiday, market liquidity is low and price movements can be exaggerated.

Prices for the New York contract slid for nine sessions before bucking the trend last Friday, while Brent posted its lowest price in more than four years last Wednesday.

Two weeks ago, OPEC agreed to cut output by 2.2 million barrels per day but prices continued to fall.

Analysts have said recent US data showing that the world's biggest economy -- and largest energy consumer -- remains mired in a recession are likely to keep crude prices under pressure in the short term.

A sharp global downturn has slashed the world's demand for energy, pulling prices sharply lower since record highs above 147 dollars per barrel in July.

New York crude plunged earlier this month to below 33 dollars, its lowest point for almost five years as weak economic data around the world stoked concerns about the effects of a sharp global slowdown.

With recession curbing the world's appetite for energy, analysts say, prices risk slumping further in 2009.