Oil rebounds from 4-year lows to above US$43 as OPEC predicts 'severe' output cut

Source: Agencies  |   2008-12-9  |     ONLINE EDITION

OIL prices rebounded from four-year lows and shot above US$43 a barrel yesterday as OPEC floated the possibility of a "severe" production cut and several countries announced new measures to boost their economies.

Chakib Khelil, president of the Organization of Petroleum Exporting Countries, said Saturday that the cartel could announce a "severe" reduction of output quotas at its next meeting on Dec. 17 in Algeria.

"Obviously when OPEC talks like this they always give the market a boost, but the question is how sustainable it's going to be," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. "OPEC can talk the talk but they have a hard time walking the walk."

Light, sweet crude for January delivery gained US$2.90 to settle at US$43.71 a barrel on the New York Mercantile Exchange. On Friday, the contract dropped nearly US$3 to settle at US$40.81 and prices fell as low as US$40.50, levels last seen in December 2004.

In London, January Brent crude jumped US$3.68 to US$43.42 a barrel.

Khelil would not specify how deep the output cut would be, but noted that some analysts are predicting a decrease of as much as 2 million barrels per day.

An output decision that startles markets would help bolster plunging oil prices, Khelil said in an interview with The Associated Press.

"The best way is to surprise them," he said. "I hope it will."

David Moore, a commodity strategist with Commonwealth Bank of Australia in Sydney, predicted that OPEC will cut production by at least 1 million barrels a day.

"The possibility of OPEC moving to tighten up the oil market is real," Moore said. "As we get closer to the meeting, people may get more wary that OPEC may make a large cut."

OPEC announced a production cut of 1.5 million barrels a day in October and investors largely ignored it, focusing instead on a global economic slowdown that has weakened crude demand.

Oil prices were also buoyed by gains in the equity markets.