Oil Rises to 5-Week High

Crude oil rose to a five-week high above $50 as Kuwait and Qatar indicated they will implement supply cuts announced by OPEC last month, and a dispute between Russia and Ukraine reduced natural gas shipments to Europe.

Kuwait and Qatar plan to cut oil shipments to Asia starting in January, refinery officials in the region said today, after the Organization of Petroleum Exporting Countries agreed on a record output reduction on Dec. 17. OAO Gazprom cut gas shipments to Europe through Ukraine to less than one third of normal levels, a NAK Naftogaz Ukrainy spokesman said.

Oil for February delivery gained as much as $1.66, or 3.4 percent, to $50.47 a barrel in electronic trading on the New York Mercantile Exchange. That’s the highest since Dec. 1. It was at $50.03 at 1:23 p.m. London time.

Brent crude oil for February settlement climbed as much as $2.24, or 4.5 percent, to $51.86 a barrel on London’s ICE Futures Europe exchange, also the highest since Dec. 1. The contract traded at $51.37 a barrel at 1:23 p.m.

Oil also advanced as the conflict between the Israeli army and Hamas reached its 11th day, with pitched battles in the Gaza Strip. Iran, the second-largest producer in OPEC and a supporter of Hamas, has called for a suspension of crude exports to allies of Israel.

OPEC decided to cut production by 4.2 million barrels a day from September levels at a Dec. 17 meeting in Algeria in response to tumbling prices, which last year had a record drop of 54 percent.

Kuwait, OPEC’s third-largest producer in November, will reduce shipments of oil sold under long-term contracts by 5 percent starting Jan. 22, said refinery officials. Qatar, the group’s second-smallest producer, will slash cargoes by as much as 6 percent in February, compared with 5 percent in January.

The U.S. Energy Department is scheduled to release its weekly report at 10:30 a.m. tomorrow in Washington.

U.S. crude stockpiles probably increased 1 million barrels in the week ended Jan. 2, from 318.7 million the week before, according to the median of seven analyst estimates.

TradingEconomics.com, Bloomberg
1/6/2009 5:28:47 AM