Oil prices rise amid OPEC cut hints & Geopolitical concerns

Geopolitical concerns and the suggestions by Saudi Arabia’s oil minister that the Organization of Petroleum Exporting Countries (OPEC) could further reduce output boosted the oil prices to surge higher Tuesday in Asian trading hours.

After hints of further cut in the output from one of the leading oil exporters in the world, Saudi Arabia, the light sweet crude for January delivery rose 15 cents to US$60.47 a barrel in midmorning trading from US$60.32 a barrel in late US trading overnight.

Saudi Arabia, the largest petroleum producer of the oil cartel OPEC, signaled over the weekend that the cartel would evaluate the effects of its recent supply curbs it had put in mid October in order to balance the world energy market, and if necessary it would authorize further cut when it meets on December 14.

Last month, in an emergency meeting in Doha, OPEC had decided to cut output by 1.2 million barrels per day (bpd) to bolster the market.

"We must look at the impact of the measures decided in Doha. If they are adequate, we will be satisfied, if they are not we will act again and the aim is to bring stability back to the market," said Ali al-Naimi, Saudi Oil Minister.

Oil prices are, however, about 23% below their all time high, above US$78 a barrel in mid-July, on account of rising US energy stockpiles and concerns over a possible economic slowdown. In spite of OPEC’s last month’s announcement about the output reduction, the oil prices have not settled above US$62 a barrel since Oct. 1.

Brent North Sea crude for January delivery had gained US$0.16 at US$60.60. Gasoline futures have closed up 0.5 cent at US$1.5937 a gallon, heating oil jumped 3.87 cents to US$1.7052 a gallon and natural-gas futures were up 28 cents at US$7.998 per million British thermal units.

Analysts believe OPEC members are serious about further production cuts in December. "OPEC has been saying this for weeks now, but when the Saudis say it, the markets take it more seriously," said Tom Bentz, a broker at BNP Paribas Commodity Futures in New York.

Analysts also believe that some other factors like geopolitical have also contributed in the soaring shares prices. “The geopolitical factors seem to be resurfacing in the market. The unrest in Nigeria and the tension in the Middle East have been constant, chronic problems and could affect the market at any point,” Tony Nunan, manager of energy risk management with Mitsubishi Corp in Tokyo, said.

“Also, there is some market concern about the repeat of a spike in oil prices caused by the problems in Lebanon,” he added.

An attack on an oil facility near Kirkuk in Iraq on Monday night, which shut the flow of crude oil to a major refinery, had also supported prices. The prices soared more than US$1 a barrel after the mortar attack.

Besides all, an unusual factor, milder-than-normal U.S. temperatures this fall, has also supported prices.