Oil prices surge on production cuts and promises of more

Those dreams of $1-a-gallon gasoline are fading fast.

Crude oil prices surged today after Saudi Arabia said it made good on promises to cut output, and as Russia said it might help the Organization of Petroleum Exporting Countries defend prices from further declines.

Near-term futures in New York jumped $4.46, or 10%, to $47.98 a barrel, the highest close since Dec. 1, and well up from the low of $40.81 reached last Friday.

From Bloomberg News:

Ali al-Naimi, the Saudi minister, said in an interview in Poznan, Poland, that the kingdom pumped 8.493 million barrels of oil a day in November, close to its OPEC production quota of 8.477 million barrels a day. That's 287,000 barrels a day less than estimated by the International Energy Agency.

"It's quite unusual for the Saudis to make this kind of statement, and it should give confidence that they are following through with the cuts," said Chip Hodge, a managing director at MFC Global Investment Management in Boston. "This may encourage others to behave similarly to end the free-fall in prices."

"The Saudis might have been impatient with the market's skepticism, so they've decided some transparency is needed," said Mike Wittner, head of oil market research at Societe Generale in London. "It shows they're deadly serious about cutting already and serious about cutting more."

Separately, Shokri Ghanem, Libya's top oil official, said in a Bloomberg TV interview today that OPEC's previous oil-supply cuts weren't enough and that the group would need to make a "substantial" additional reduction at its next meeting, on Dec. 17, in Oran, Algeria.

The Russians, too, seem to be drawing a line in the sand on prices.

From Bloomberg:

President Dmitry Medvedev said Russia may join OPEC and reduce production to support the oil price.

"We have to defend ourselves," Medvedev said in the Ural Mountains city of Kurgan today. "This is our revenue base, both from oil and from gas," he said. "I believe that we mustn't rule out any options."

Defensive measures may include "cutting the volume of oil production and participating in existing organizations of suppliers, and in new organizations, if we can reach such an agreement," Medvedev said in comments broadcast on state TV.

It may just be a lot of bluster amid sinking global demand for crude, but it scared the oil market higher today.

A tumbling dollar also is helping to drive some money back into commodities. Amid the latest dismal reports on the U.S. economy, some traders have been dumping the greenback. The euro jumped to $1.332 today from $1.301 on Wednesday.

-- Tom Petruno

Photo: Saudi Oil Minister Ali al-Naimi (Ronald Zak / Associated Press)

Comments

[Don]

this is a Warning If You Cut to much You Guys Could ROcket Crude Oil Over $200 a barrel I bet You Will Love That huh and we Wont and You Guys gonna
put Hole World on stand still if Your Gonna Cut 2.5 to 3 Million Barrels
Then Your CRazy I bet You Guys WIll Love it GO head And Try
and if it goes Up BADLY will See what hole world Will come to A major recession

[John Wyckoff]

OPEC needs to be very careful, the world economy is very shacky now and can't take another shock like 140.00 oil.

[megal]

considering we are in recession. cutting production would't make any difference in price. i would expect price to go more down. OPEC can do there best,......who cares???

[Fred]

If gas prices are to rise because of the automotive bail out and OPEC production cuts, why doesn't the oil industry bail out the car manufacturers. It isn't fair that taxpayers should have to pay higher gas prices and bail out the auto industry too.

[steve griffith]

go ahead turn off the spiggots and see what happens when we stop buying your junk , we as americans need to realize we are being screwed by everyone including our own goverment they will not step in and stabilize the market and allow these idiots to raise the price when there is no market and no money to pay for high gas prices, they are laughing at us so let us get the last laugh and stop driving when ever you can and force these jerks to sell the product at a fair price there is no reason for a spike in price there is no market for the oil so what they cut back the market is still over saturated with gas and oil and if our goverment is going to allow this and not start drilling here at home so we can tell these jerk offs to go to hell then we need to rise up and fight back ourselves do not let this keep happening this is not a fair and open market this is price fixing and it is allowed to happen if i did this with a product i would be arrested for colluision price fixing and gouging and then do time in prison but these idots are allowed to do it and our goverment lets them thanks guys we really need this dont we , no jobs no money and you let them screw up with the oil what next bail out the poor oil boys along with wall street the banks and the auto industry , king paulson you are an idoit and all you are doing is taking care of your frat brothers thanks jerk

[Travis Burelle]

Opec, and other producing nations cannot afford to cut production TOO much.. Remember, they have to sell oil to survive. So, I think a lot of this "talk" is nothing more than posturing, and attempting to strike fear into the market. I don't think it's going to work. The money simply isn't there, and people aren't buying oil/gas.

Travis

[martscan]

The average American has no idea to what extent oil producing countries rely on their customers, especially the largest customer in the world, the U.S. Producing countries are almost totally dependent on their oil revenues for their own countries' economies...and fear world recessions and decreased demand, which threaten their well being...to a greater extent than countries that have more diversified economies. Oil producing countries are viewed by Americans, for the most part, as 'enemies', gougers, bad guys, etc. They are not enemies any more than we are deadbeats to them...we need each other in a balanced relationship that works for both consumers and producers. The days of embargoes are over..as well as the days of energy waste and conspicuous consumption. Don't think for one minute that producing oil countries are not aware of the interdependencies of world economies, American technology in oil extraction, which they need, the possibility of a 'Manhattan Project' to develop alternate energy sources, their decreasing reserves and 'peak' points being surpassed, our capacity for demand destruction...witnessed by almost 10B less miles driven in July alone, increasing awareness and curtailment of global warming, etc. Barring Americans understanding how trade offs work in a global economy, and their constant beefing about "Arabs", Chavez and Putin...now that gas is under $2.00, how many Americans would be in favor a $2.00/gal tax on gasoline to finance a program that would seriously reduce our dependence on foreign oil? I would.

[Alex]

OPEC needs to cut production while oil prices tumble- while it still won't stop the decline in prices, it'll reset the market for when the recession ends. At this point, the supply associated with whatever price it ends on will be less and thus, when prices go back up, there will be more room to increase supply and try to keep gas from hitting $147/barrel again.

[Matt]

A point to remember is that not all oil is from the Middle east or Foreign. There are Americans such as myself who own small oil rigs who do not make huge profits on our wells. I at a middle class income and working every day just to make ends meet. If the price of oil came up some it would help many of us Americans just trying to make an honest living. I don't want it to come up alot or it will create havoc in the market like it did before. I just want it to comoe up enough to be profitable. Many Americans working in the oil fields will be unemployed soon if the prices don't come up. Companies will start stacking rigs as they lose their profit margin. It is already happening in Wyoming.

[Jeff]

It is true that not all the oil is from the middle east, and the drillers stopping is just an accuse for the greedy to stop drilling. They are all happy when they are making money hand over fist, killing the ecomody to make another buck. Now look at the mess we are in. People are talking about the poor oil workers being out of work, what about all the other jobs that are lost because of the high oil prices. You can have all the oil you want but if nobody has any money it is no good to you. High prices are only hurting the working person that is doing their best to get by, when gas was 4 and 5 bucks a gal people were selling everything they had to get to work (that is if they still had a job), buy food (that doubled in price).

What we need is new sources of fuel, when it comes online then where will the oil companies be? They will be the ones beging for a bail out when they would not give the hard working person a break. The only reason oil is down under 50.00 a barrel is because they have already taken just about every penney a person has, now OPEC wants the rest. Got news guys, there is no more money to take, you got it. I know a guy that is actually having to work now that oil prices are back down to a reasonable price, no more $5,000+ dollar a month checks, time to work like the rest of us.

[G .W. DUHON]

After reading the comments I've concluded this country can be self-sufficient without any foreign import of crude OIL, the only reason that we purchase crude oil from foreign sources is to have our footprint in the region! Which generates monies for their economy, and in my opinion since most of them consider its enemies,( infidels ) their words not mine, so why should we subsidize their government just so we can have a reason to be in that region, who needs it!! This country can be self-sufficient with its own oil reserves, point in case, we have enough whales in the Gulf of Mexico alone to generate vast amounts of crude oil for the next 300 years, hopefully by then someone will quit dragging their feet and expedite biofuel, so we can be oil independent, and less remember most of the countries do depend on oil exports as their main source of income for their respective countries, also lets remember during World War II, he took the Germans a very short time to realize and produce not petroleum products which require no import of foreign crude oil, diesel engines can be run on common cooking oil, and the common combustion engine has technically been obsolete for at least 50 years, and I for one do not like foreign countries or even domestic profiteers manipulating the price of crude oil, so with the abundance of highly intelligent individuals in this country I see no reason to import crude oil from foreign destinations!! Looking at it from the other side of the coin, the only reason crude oil escalated to over $147 per barrel this past summer, was for no other reason but Greed!! And if the old companies have to shut down refineries for some sort of self-serving reason, they need to start with their companies/refineries that they manage and own outside the United States, quit outsourcing the American workers jobs!!!!!!!!!!!! antiquity lining their pockets with enormous profits, there would be no reason to lay off hard-working American workers!!! My point is simple, as a 15th generation American, we have been through more times before and we will get through these if the powers to be remember one thing the American workforce is the backbone of this country and by threatening to shut down jobs taking food away from their households, is like holding a knife to the throat of the American workers in saying take this or else! That should not be tolerated! Under the Constitution of the United States the common people have the right to disagree and remove elected officials especially if they are obviously spending the taxpayers money needlessly, the recent events are generated surpluses of monies for different banking industries in this country, was excessive and unnecessary!!! Because , in hard-working people were still losing their homes, of course it doesn't seem to effect the executives they are still able to maintain their numerous homes!! People just need to have the courage to stand together and say Enough!!! And elected officials to care about American interest, especially, working-class and struggled with the decision of having enough money to put gas in their tanks and maintaining their jobs so that families can survive with enough basic necessities to continue. They also need to remember one thing they are not white Americans black Americans, Hispanic American or Chinese-American, or even the true American citizens than Native Americans they need to come together and remember they are American. And put down their petty differences and make your voice heard. Respectfully submitted,G.W DUHON

[Chad]

Does anyone know why the prices are plunging? Its because the Global economy is extremely low. Why is it extremely low? because not as many people are buying things (particularly here in the U.S.). Why arent people buying? because no one can afford to buy things because of the gas prices. I understand this is a complicated situation but it as a young middle class American boy, I understand that gas prices are what caused most of this. Much of this was inevitable but since all major gas companies made record profits last year and in the previous year, i really dont understand why the middle class cannot have a break. With low prices at the pump, people will be able to afford to go out more. With more people buying stuff, companies can hire more due to better business, and the severity of this recession is much much smaller.

As I stated before, I dont claim to be an economist or anything of the sort. And i dont fully understand the ins and outs of big business and corporations but I am not stupid and I want to spend less of my paycheck on gas at the end of the week. Now that Oil production is down, I dont see why we cant just let it be for a few months so the normal people can get back on their feet. So what if gas companies dont make much money for a quarter year, they already have plenty of billions of dollars to pay the groceries for a little while. As a hardworking guy, It would be hard for me not to run this guy over if i saw him on the side of the road...