With nod from Saudis, oil prices rise

The country's support is critical for an OPEC plan to cut production and keep prices up.

Published October 20, 2006

NEW YORK - Oil prices rose above $58 a barrel Thursday after Saudi Arabia signaled its support for an OPEC production cut of 1.2-million barrels a day.

Ministers from the Organization of Petroleum Exporting Countries were meeting in Doha, Qatar, to work out an agreement on how to allocate the cut, which would begin Nov. 1.

The anticipated move by the cartel follows a more than 25 percent decline in oil prices since a mid July peak above $78 a barrel and would be the first cut since December 2004, when oil traded slightly above $40 a barrel.

Light sweet crude for November delivery rose 85 cents to settle at $58.50 a barrel Thursday on the New York Mercantile Exchange.

While several OPEC members have publicly advocated the cut over the past two weeks, Saudi Arabia's oil minister, Ali Naimi, remained conspicuously silent, leaving traders skeptical that a production cut was imminent. Naimi broke that silence Thursday, telling reporters before the OPEC meeting that his country "absolutely supports the cuts."

"I don't know if Ali Naimi had a choice in the matter. OPEC's credibility was on the line," said Phil Flynn, an analyst at Alaron Trading Corp. "Saying the Saudis are on board succeeded in stopping the free fall in price, at least for today. ... Really, the main goal of the meeting, the greater goal, was to show unity, which they have done."

Analysts remained eager to learn whether the cartel plans to reduce its official output quota of 28-million barrels a day, or to reduce actual daily production, which is believed to be slightly lower than that.

Also, OPEC ministers haven't ruled out the possibility of further cuts: When asked if another cut could come when the group meets in December, Qatar's Energy Minister Abdullah Bin Hamid Al-Attiyah said, "Everything is possible."

"It sends the signal that OPEC is prepared to cut more, if prices fall," said Flynn, noting that the group wants prices to stay at around $60 on Nymex. "They're leaving the door open: If market doesn't react the way they want it to react, there will be further cuts in the future."

Oil prices have slumped since July because of concerns about slower economic growth, rising inventories and a weaker-than-anticipated hurricane season, allowing Gulf of Mexico producers to operate without interruption.

In its latest weekly report, the Energy Department said crude oil supplies grew last week by 5.1-million barrels to 335.6-million barrels, or 7 percent above year ago levels.