Crude oil prices rise as OPEC cuts speculated to reduce supplies

Crude oil prices increased to their highest in two weeks amidst speculation that inventories would reduce as OPEC implements production cuts.

The Organization of Petroleum Exporting Countries (OPEC) is scheduled to reduce supplies by 5.4 per cent in January to 26.15 million barrels per day, Bloomberg said quoting estimates from consultant PetroLogistics Ltd.

Reports said OPEC is very serious about implementing its planned cuts in production to support the price of oil. Crude oil for March delivery rose $2.80, or 6.4 per cent to $46.47 a barrel on the New York Mercantile Exchange, marking its highest settlement level since 6 January.

Prices have increased by 4.2 per cent this year, though they are 47 per cent lower than a year ago. Oil for April delivery is $2.74 per barrel higher than for March deliveries, reports said.

Starting January 2009, OPEC members with production targets, excluding Iraq, have a combined quota of 24.845 million barrels a day. The 12-member oil cartel is slated to make the deepest supply cuts in its history to support prices through compliance with its revised quotas.

Fuel demand in the world's largest consumer of oil, the US, averaged 19.4 million barrels a day during the four weeks ended 16 January, lower by 4.7 per cent from a year earlier, according to a report by the US Energy Department.

Regular gasoline at the pump averaged across the US remained unchanged at $1.85 per gallon according to the American Automobile Association (AAA). Prices are down 55 per cent from their record peak of $4.114 per gallon on 17 July 2008.

In December 2008, the oil cartel had agreed to cut production by 2.2 million barrels per day as prices fell by over $100 since July 2008.