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Oil prices surge on production cuts and promises of more

December 11, 2008 | 12:26 pm

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.

Alnaimi "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)

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