Oil Rises More Than $1 on Signs OPEC's Lost Control of Prices

By Mark Shenk

Nov. 16 (Bloomberg) -- Crude oil rose more than $1 a barrel on speculation that the Organization of Petroleum Exporting Countries has lost control of prices.

``OPEC can't do anything about the price,'' Venezuela's oil minister Rafael Ramirez said today in Riyadh, Saudi Arabia, where OPEC is holding a heads-of-state summit this weekend. Oil prices could reach $100 a barrel ``soon,'' he said. The December futures contract in New York expired today.

``OPEC could make things worse with a constrictive output policy but they can't lower prices with additional output,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``The expiration of the December contract is adding a lot of volatility to the market. Open interest is plunging so there's a lack of liquidity.''

Crude oil for December delivery rose $1.67, or 1.8 percent, to $95.10 a barrel at 2:51 p.m. on the New York Mercantile Exchange. The more-active January contract rose $1.77, or 1.9 percent, to close at $93.84 a barrel. Futures climbed to $98.62 on Nov. 7, the highest intraday price since trading began in 1983. Prices are up 69 percent from a year ago.

Prices dropped 1.3 percent this week, only the second weekly decline since August.

Brent crude oil for January settlement rose $1.39, or 1.5 percent, to close at $91.62 a barrel on the London-based ICE Futures Europe exchange. Brent reached $95.19 a barrel on Nov. 7, the highest since trading began in 1988.

Abu Dhabi Meeting

OPEC's next meeting on production policy will be held on Dec. 5 in Abu Dhabi. The group was founded in 1960, holds three- quarters of the world's oil reserves and accounts for more than 40 percent of current production.

``There was talk earlier that OPEC might increase production in Abu Dhabi,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``As the market went down the silence was deafening. If prices head back to the $97 to $98 level, we will probably start hearing about additional barrels coming on the market.''

Oil prices have increased more than 20 percent since Sept. 11, when OPEC decided to increase output by 500,000 barrels a day starting Nov. 1.

``This is a leadership meeting and there's no expectation that production policy will change,'' said Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons in St. Louis. ``This might have a bigger impact on the foreign exchange markets than on the oil market. There are a number of concerns about U.S. policy concerning the dollar.''

Falling Dollar

The U.S. dollar declined against the euro, enhancing the appeal of commodities as an investment. Commodities often move in the opposite direction of the U.S. currency. A lower dollar makes oil relatively cheaper in the countries using other currencies.

Saudi Arabia, the world's largest oil exporter, won't discuss pricing oil in currencies other than the U.S. dollar, Saudi Foreign Minister Prince Saud Al-Faisal said, speaking at a meeting of OPEC oil and finance ministers today. Venezuela and Iran have pushed for discussions on pricing oil in currencies other than the dollar.

``As for the monetary aspect and the dollar I would like to ask his Excellency, the minister of Iran, to leave this question to the appropriate party, the ministers of finance, without mentioning that we gave them this task so that there won't be negative impact from OPEC,'' Al-Faisal said today, speaking in reaction to an Iranian proposal to discuss the currency.

``I don't think the market needs more oil,'' Algerian Oil Minister Chakib Khelil told reporters in Riyadh. He voiced concern that the global economy is weakening because of the subprime mortgage crisis in the U.S., and this may be reducing demand for fuel. ``This month, there is lower demand in China, lower demand in the U.S,'' Khelil said.

U.S. Inventories

Prices fell yesterday after the Energy Department reported that U.S. crude-oil stockpiles climbed 2.81 million barrels last week, the first gain in four weeks. Analysts surveyed by Bloomberg expected the report to show a decline.

``This is the fourth week that prices have rallied on Friday,'' Barakat said. ``We also came off strongly yesterday, which may be in part responsible for the move today.''

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net .

Source