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Oil edges higher on OPEC talk of more output cuts

OIL prices rose above US$37 a barrel yesterday after OPEC members said over the weekend they were considering more production cuts to adjust to weakening global demand for crude.

Light, sweet crude for March delivery rose 11 cents to US$37.62 a barrel by midafternoon European time in trading on the New York Mercantile Exchange - though volumes were limited with US markets closed for Presidents Day. The contract rose US$3.53 on Friday to settle at US$37.51.

The Organization of Petroleum Exporting Countries has implemented most of the 4.2 million barrels a day of output reductions announced since September, but the cuts have been overwhelmed by a collapse in demand for energy amid the global economic slowdown.

On Sunday, Mohammed Saleh al-Sada, Qatar's minister of state for energy and industry affairs, said OPEC is ready to cut output further when it meets next month. Al-Sada said a reasonable price for oil would be US$70 a barrel.

Venezuelan Oil Minister Rafael Ramirez said Saturday his country would support new production cuts in the face of rising crude inventories.

"It's probably 50-50 that they'll cut again in March," said Clarence Chu, a trader at market maker Hudson Capital Energy in Singapore. "The budgets of a lot of those countries run on oil so they need the price higher."

Even within OPEC, however, there is skepticism over whether reducing supply will spur higher prices.

Moussa Marafi, a high-ranking Kuwaiti oil official, told Annahar newspaper in comments published Sunday that crude prices are unlikely to rise above US$40 per barrel, even if OPEC decides to cut as much as 2 million barrels per day next month.

Oil prices are being pressured by surging US crude inventories and a lack of compliance to quotas by some OPEC members, he said.

"Until demand picks up, oil won't have a significant rally," Chu said. "Another big OPEC cut could add US$5 to the price, but it's not going to send it to US$70."

US markets are closed yesterday for Presidents Day, which is expected to keep trading volumes thin.

Investors have already priced in the passage of a US$787 billion stimulus package that President Barack Obama plans to sign on Tuesday and will be looking for its impact on consumer and industrial demand in the coming months.

Obama is scheduled to outline his mortgage-rescue proposal on Wednesday.

The market will also be looking for more details on the US Treasury's bank rescue plan aimed at getting bad assets off banks balance sheets. Dealing with these assets is considered crucial for the recovery of consumer lending and a prerequisite for improvements in the US economy, the world's largest energy consumer. But US officials have not provided many details on how they expect to implement the plan.

In other Nymex trading, gasoline futures rose 0.5 cents to US$1.21 a gallon. Heating oil fell 0.90 cents to US$1.29 a gallon, while natural gas for March delivery dropped 14.6 cents to US$4.31 per 1,000 cubic feet.

In London, the March Brent contract rose 20 cents to US$45.01 on the ICE Futures exchange.


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