Oil climbed back above $40 a barrel today as some investors grew convinced that aggressive supply cuts by OPEC may finally be building a floor under crude prices.
Despite softening world energy demand, oil has held above the $40 mark in recent weeks, buoyed in part by OPEC's agreement to remove more than 4 million barrels per day (bpd) of output since September to rebalance world markets.
A Reuters survey showed the group, which pumps one-third of the world's oil, had carried out about 67 per cent of its pledged, record curbs in January.
US light crude for March delivery rose 25 cents to $40.33 a barrel by 12.15pm, having fallen to $39.83 yesterday, the first time below $40 a barrel in three weeks.
London Brent crude was 52 cents higher at $44.34.
"Prices do seem to have bottomed for now," said Kevin Norrish of Barclays Capital. "OPEC has probably taken more than enough off the market and there's a risk of over-tightening, in which case prices would go back up fairly swiftly."
Oil fell sharply yesterday as the worsening global financial crisis led to grim forecasts for fuel demand and US refinery workers averted a strike that would have cut output.
US gasoline and heating oil were especially hard hit, falling more than 9 per cent and 6 per cent, respectively, while US crude lost only about 4 per cent.
While protests ended in the US energy sector, they could be about to start in OPEC producer Nigeria.
Nigeria's senior oil workers' union threatened to begin an indefinite strike from unless the government improved security in the Niger Delta, the country's oil heartland.
Nigeria pumped about 1.75 million barrels per day (bpd) in January, versus its OPEC supply target of 1.67 million bpd, according to a Reuters survey.
Top exporter Saudi Arabia and neighbouring Gulf OPEC members virtually met their supply targets, which analysts said would go some way in removing excess oil.
"OPEC cuts will begin to take effect on inventories in a few months and the market is pricing that in. The caveat is the economy," said Anthony Nunan, risk management executive at Tokyo-based Mitsubishi.
Reuters