Oil rose more than 1 percent and topped $46 a barrel on Monday, extending the previous session's gains, as investors bank on expectations that Opec will cut output again at this month' meeting. But nagging worries about the health of the global economy and its impact on world energy consumption caused oil prices to pare some of their early gains of more than 2 percent.
US crude for April delivery rose 77 cents to $46.29 a barrel by 0746 GMT, after rising as much as $1.24. London Brent crude rose 40 cents to $45.25 a barrel. It was the first time since December 11, 2008 that NYMEX crude had gained a premium over Brent at the settlement. "In general, the market is still quite bullish that Opec is going to cut production of maybe between 0.5 million-1 million barrels per day," said Clarence Chu, a trader at Hudson Capital Energy in Singapore.
"But there's some degree of cautiousness on the amount Opec would be able to cut." Opec will slash its 2009 oil demand forecast by 1 million barrels per day (bpd) because of the global economic slowdown, Opec's secretary general Abdullah al-Badri said on Monday, adding that although the current oil price was not really acceptable to the producer group, it was not as bad as it could be, given the state of the global economy.
Al-Badri had also said on Friday that low oil prices could provide economic stimulus in the short term, but at the cost of a supply shortfall in future due to low investment. The group has already agreed to cut production by 4.2 million barrels per day since September, and a Reuters survey found that members have met 81 percent of their output reductions as of last month.
In a sign that oil investors were expecting Opec to further cut output at this month's meeting, there were fewer open interest positions at the $25, $30 and $35 put options on the NYMEX April crude oil contract versus the previous week, according to Reuters data on Friday. Open interest positions remained bulked at the $50 and $55 call options, with more at $55 than the previous week.
Still, analysts said the gloomy economic outlook would continue to cast a pall over oil prices. Japan swung to its first current account deficit in 13 years in January as exports collapsed, and a key US policymaker said a co-ordinated global effort was needed to boost demand and drag the world out of recession. Renewed threats from Iran, the world's fourth-largest oil exporters, could also have offered support to prices, analysts said.
Iran has test-fired a new air-to-surface missile, Iranian media reported on Sunday, in the Islamic Republic's latest display of its military capability. Tehran has sufficiently mastered nuclear technology to be able to produce a bomb if it choose, Israel's military intelligence chief was quoted as saying on Sunday.