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Oil prices near new highs for the year

OIL prices rose to the highest level in two months as investors geared up for the potential of more OPEC production cuts.

Benchmark crude for April delivery gained US$1.55 to settle at US$47.07 a barrel on the New York Mercantile Exchange. A barrel of oil, which last cost more than US$50 in early January, had reached as high as US$48.83 earlier in the day.

Oil has been ready for a recovery, and historically it's hard to find a 30-day window kinder to the market than about March 15 through April 15, said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

Kloza said prices seem to be heading toward the US$50 threshold.

"It's almost like it's on a natural trajectory that should see it do that," he said. "That doesn't mean we've started a big bull market. It's just sort of we're in a window here for a typical recovery and a little bit of a spring rally."

The rally surged even as the dollar rebounded against other major currencies. Investors are prone to buy commodities like oil and gold as a protection against inflation and dollar weakness.

"It might indicate to a lot of folks that watch it that if it wasn't for the dollar, we might already be knocking on the door of US$50," Kloza said.

Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said the crude market has held up in the face of another downdraft in the stock markets.

Oil investors often look to stock markets as a measure of sentiment on the overall economy, but crude has risen from below US$35 a barrel last month despite the major U.S. equity indexes plunging to 12-year lows last week.

"We've seen a disconnect for almost a week, and a lot of bullish-inclined traders are viewing that as a tip-off that we may have placed a bottom in the crude," he said. "I think we have placed a bottom in the crude, but I'm still leaving open the likelihood that we'll go back down and test those lows again down around US$33."

The Organization of Petroleum Exporting Countries plans to meet Sunday in Vienna, and some of the group's leaders have said a production cut is likely.

Iranian Oil Minister Gholam Hossein Nozari was quoted by the official IRNA news agency Sunday saying OPEC members have "almost" completely complied with the 4.2 million barrels a day of output quota reductions announced since September.

Also on Monday, Iraq's oil minister said crude oil prices are not "profitable and fair" for oil producing countries and should be increased.

Hussain al-Shahristani, speaking to the private Sharqiyah television station, said OPEC members are working to control prices to "inch them up." He said Iraq will have to review its budget in mid-2009 if oil prices continue to stay below US$50 per barrel.

After cutting production for months, it finally appeared last week that OPEC had regained its footing. Domestic producers are also slashing production and on Friday, Baker Hughes reported that the number of oil and gas rigs in North America fell for the seventh straight week.

That was two days after the government said that U.S. crude inventories fell for a second week in three, halting a trend over the previous six weeks that saw inventories jump more than 30 million barrels.

Some analysts expect OPEC to announce a cut of at least 500,000 barrels a day, though the group's biggest producer, Saudi Arabia, hasn't yet commented on the possibility of further output reductions.

Ritterbusch said it's likely that Saudi Arabia will put more of an emphasis on compliance with previous production cuts rather than focusing on new reductions.

"I think that took a little steam out of the OPEC factor as a bullish influence," he said.

Oil has traded near US$40 a barrel since December after plummeting from US$147 in July as crude demand fell amid the worst global recession in decades. Prices rose Friday even as the Labor Department said America's unemployment rate rose to 8.1 percent in February, the highest since late 1983.

Phil Flynn, an analyst at Alaron Trading Corp., said the crude market is giving OPEC its due respect by pricing in another production cut.

"But after that we will still need to see demand kick in to a level that will start eating into supply," Flynn wrote in his morning energy report.

In London, Brent prices fell 72 cents to settle at US$44.13 on the ICE Futures exchange.

In other Nymex trading, gasoline for April delivery rose less than a penny to US$1.3351 a gallon, while heating oil fell 1.4 cents to US$1.2294 a gallon. Natural gas for April delivery lost 8 cents to US$3.865 per 1,000 cubic feet.


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