Oil prices rose more than US$2 to above US$56 a barrel Tuesday on OPEC production cut concerns, while natural gas soared more than 10 percent on expectations of more Arctic weather in the Midwest.
The Wall Street Journal reported Tuesday that Saudi Arabia has told its customers it will cut supply by a further 158,000 barrels a day, effective Feb. 1. "After these cuts, our oil production will have declined by about 1 million barrels a day since last summer," a senior official said, according to the newspaper.
The markets responded by sending prices for light, sweet crude for March delivery up $2.40 to $56.41 a barrel in afternoon trading on the New York Mercantile Exchange. March Brent crude at London's ICE Futures exchange jumped $2.21 to $55.89 a barrel.
"It seems a cartel has a right to change its mind," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. "Yesterday, Saudi Arabia says it's happy with $50-a-barrel oil, then today there's a report on the Saudi's cut in production. It's a day of contradictions."
On Monday, prices fell by more than $1 to settle at $54.01 barrel after a Saudi official reiterated that they don't favor further production cuts and are comfortable with prices at current levels, according to a Dow Jones newswire report. The Saudi Arabia ambassador to the U.S., Turki al Faisal Saudi, was speaking at a National U.S.-Arab Chamber of Commerce event.
The Organization of Petroleum Exporting Countries said it would begin cutting production by 1.2 million barrels a day in November but some traders speculate that some cartel members were not complying. The group said late last year it planned to cut production an additional 500,000 barrels a day starting Feb. 1. Saudi Arabia is OPEC's biggest producer.
Meanwhile, continued winter weather across the U.S. helped to support crude oil prices and drive up prices for natural gas.
"Petroleum traders are taking their cues from the natural gas market, which is up on cold weather patterns," said Tim Evans, energy analyst at Citigroup Global Markets.
Natural gas futures jumped after a seven-day forecast for the Midwest predicted temperatures dipping below zero, Flynn said. The Midwest is considered the heart of the natural gas market. Natural gas futures rose more than 70 cents to $7.642 per 1,000 cubic feet on the NYMEX.
Heating oil also rose 6.6 cents to $1.6150 a gallon. Colder-than-normal temperatures are expected through mid-February in the Northeast, which is responsible for 80 percent of the country's heating oil consumption. The markets are also looking ahead to the weekly report on U.S. inventories on Wednesday.
U.S. crude imports are expected to have risen by 1.2 million barrels in the week ended Jan. 26, according to a survey of analysts by Dow Jones Newswires. Gasoline stockpiles are expected to gain 1.6 million barrels, while distillate stockpiles, which include heating oil and diesel, are seen falling by 2.6 million barrels.
In other NYMEX trading, gasoline futures rose nearly 6 cents to $1.5000 a gallon.
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