The price of oil rallied above $24 a barrel here on Tuesday when snowfalls in the US Northeast and Saudi calls for OPEC production cuts sparked a New Year buying spree.
A barrel of reference Brent North Sea crude for February delivery spiked upwards to within close range of $25 a barrel, then slipped to $24.72 by mid-afternoon, still up markedly from $23.87 a barrel at the close on Friday.
In New York, a barrel of reference light sweet crude for February delivery rose to $27.02 in early deals, from $26.80 at Friday's close.
Traders here returned to their desks on Tuesday after an extended New Year weekend to digest the impact of snowfalls in the US Northeast and calls from Saudi Arabia for a cut in production by the Organisation of Petroleum Exporting Countries (OPEC), which is scheduled to meet on January 17.
Several OPEC oil ministers have already called for cuts to be made at the Vienna meeting, but the latest comments from Saudi Arabia marked the first time that the OPEC kingpin has spoken out in support of such a move.
"Saudi Arabia backs a production cut," a senior Saudi oil official said at a Gulf Cooperation Council summit in Manama, Bahrain, on Sunday.
The reduction was expected to be "between 1.5 and two million barrels a day to maintain an appropriate oil price around $25 a barrel," he told AFP.
The exclusive oil-exporting club increased production four times last year in an attempt to rein in prices that soared to 10-year highs above $35 a barrel in the autumn.
But the tide has since turned for oil prices, and many market players are now predicting that OPEC will soon tighten its taps to avert a price collapse when spring arrives in the northern hemisphere.
On Tuesday, OPEC announced that the basket price that it uses to help set production quotas had remained below $22 a barrel for over a week.
OPEC said that the price stood at $21.75 last Friday, below its target band of $22-28, fuelling expectations of production cuts under the group's price-band mechanism agreed in March.
Under an informal price-band mechanism agreed last March, the cartel agreed to decrease output by 500,000 barrels a day if the price stays below $22 for more than 10 working days.
Taking into account public holidays and weekends, that 10-day period would end next Monday, January 8.
BNP Paribas analyst Regis Collieux said that an OPEC cut of between 0.5 million and one million barrels a day, combined with the effect of the recent Iraqi oil embargo, "could rapidly drive stocks down ... and jeopardise the stock-building process in the spring."
"The market would then be in a situation very similar to last year's, with very high volatility and the risk of a return towards $35 at the end of the winter," he warned.
Against this backdrop, news that Iraq had resumed exports through the Turkish port of Ceyhan over the weekend failed to quell the latest rally.
Market watchers at the GNI brokerage said that the prospect of further cold weather in the US Northeast would likely "hold a positive sway over oil in the coming days and this positive tone will be added to by fears of OPEC tightening in the run up to the January 17 (OPEC) meeting."—AFP.
©--Agence France Presse.
© 2001 Mena Report (www.menareport.com)
