Oil Gains a Third Day After Reports Saudi Arabia Cut Production This Month

Oil gained for a third day in New York after a Saudi Arabia-based economist said the holder of the world’s biggest crude reserves cut production this month.

Futures gained as much as 0.6 percent today after John Sfakianakis, chief economist at Riyadh-based Banque Saudi Fransi, said the desert kingdom reduced output by 300,000 barrels a day. Barclays Plc said Saudi Arabia may be reducing production of its lighter oil blends introduced in response to the slump from Libya.

“The news that the Saudis are cutting output should be scaring the daylights out of people,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “It looks like they couldn’t find buyers for their light blends,” he said.

Crude for May delivery gained as much as 60 cents to $108.71 a barrel, in electronic trading on the New York Mercantile Exchange, and was at $108.56 at 9:21 a.m. Sydney time. Yesterday, the contract increased $1, or 0.9 percent, to settle at $108.11. Prices are up 27 percent from a year ago.

Brent oil for May settlement slipped 52 cents, or 0.4 percent, to end the session at $122.36 a barrel on the London- based ICE Futures Europe exchange yesterday. The more actively traded June contract declined 33 cents to $122.

Falling Libyan crude output increased prices for comparable low-density, low-sulfur grades. Saudi Arabia developed two blends to offset the shortfall.

Brent Premium

The European benchmark traded at a premium of $14.25 a barrel to U.S. futures yesterday. The difference between front- month contracts in London and New York surged to a record $19.54 on Feb. 21 as unrest spread in the Middle East and North Africa and stockpiles climbed at Cushing, Oklahoma, the delivery point for New York futures. The spread averaged 76 cents last year.

Saudi Arabia, the biggest oil producer in the Organization of Petroleum Exporting Countries, pumped 9 million barrels of crude a day in March, the highest level since October 2008, according to data compiled by Bloomberg News.

The conflict in Libya is the bloodiest in a wave of uprisings that has toppled leaders in Egypt and Tunisia and spread to Algeria, Bahrain, Iran, Oman, Syria and Yemen.

The chief of the North Atlantic Treaty Organization said yesterday that the alliance needs more attack jets to target Libyan ground forces, putting pressure on the U.S. military to step back into the air campaign against Muammar Qaddafi’s troops.

Oil in New York also rose yesterday after the dollar dropped as U.S. initial jobless claims rose and producer prices advanced at a slower pace, signaling the Federal Reserve will keep borrowing costs low. A falling U.S. currency increases the appeal of raw materials priced in dollars.

(Source: http://www.bloomberg.com/news/2011-04-14/oil-gains-a-third-day-after-reports-saudi-arabia-cut-production-this-month.html)