Oil prices leap after Venezuela eyes output cut
NEW YORK (AFP) — Crude oil prices spiked higher Tuesday after OPEC member Venezuela said it would ask the cartel at its September meeting to cut production if downward price pressure continues.
New York's main contract, light sweet crude for September delivery, jumped 1.66 dollars to close at 114.53 dollars a barrel.
In London, Brent North Sea crude for October rallied 1.31 dollars to settle at 113.25 dollars.
The futures contracts closed off earlier highs driven by supply concerns after Venezuela's Energy and Petroleum Minister Rafael Ramirez said that Venezuela was considering pressing for an output cut after an abrupt price drop by "more than 20 dollars clearly shows that there has been speculation in the market."
Ramirez said that "if there is a trend or dynamic toward lower oil prices, Venezuela will consider the possibility of a cut in production. This is the position that we will take at the next OPEC meeting" in Vienna in September.
"The price must be maintained at a level close to 100 dollars, because the costs have increased," he added.
The New York futures contract had dropped to about 112 dollars a barrel after hitting record highs above 147 dollars last month.
"The market is reacting to reports that OPEC may cut production," said Veronica Smart, an analyst at the Energy Information Centre in Britain.
Earlier Tuesday the market had slumped as Tropical Storm Fay missed energy production facilities in the Gulf of Mexico while weak July data on the US economy stoked concerns that demand in the world's biggest market will slow.
Fay hit Florida with severe winds and drenching rains early Tuesday, but did not strengthen into a hurricane.
The US Labor Department reported its producer price index, a gauge of wholesale inflation, unexpectedly soared by the biggest margin in 27 years, 9.8 percent, from a year ago.
In another blow to sentiment, the US Commerce Department reported construction of new homes fell 11 percent to the lowest level in 17 years.
"Standing back from all of this to glance at the big picture would certainly seem to endorse the oil market's sharp month-long decline," said John Kilduff, analyst at MF Global.
Prices have fallen significantly since hitting record highs above 147 dollars on July 11. Yet on Tuesday, they were still almost 15 percent higher compared with the start of the year, when prices broke through 100 dollars for the first time.
"Oil has lost its bullish mojo and it may take a major event or a great technical stand to go get its groove back," said Phil Flynn at Alaron Trading.
"The same way this market seemingly overreacted to every bullish nugget of information on the way up, it is now ignoring those same nuggets on the way down."
