Jan. 13 (Bloomberg) -- Crude oil rose for the first time in six days in New York after Saudi Arabia said it will make deeper supply cuts than announced to bolster prices.

February production will be “lower than the target” set at a Dec. 17 OPEC meeting, Saudi Oil Minister Ali al-Naimi said as he arrived for a conference in New Delhi today. The country is currently producing 8 million barrels a day, about level with its 8.051 million-barrel-a-day allocation.

“There’s a lot at stake here,” said Sarah Emerson, managing director of Energy Security Analysis Inc. in Wakefield, Massachusetts. “OPEC is worried about both their credibility and the price of oil. The Saudis are going to cut production until prices stop falling.”

Crude oil for February delivery rose 19 cents, or 0.5 percent, to settle at $37.78 a barrel at 2:43 p.m. on the New York Mercantile Exchange. Oil is down 59 percent from a year ago.

“We will do what it takes to bring the market in balance,” al-Naimi said as he arrived at his hotel in New Delhi today.

Oil ministers from the Organization of Petroleum Exporting Countries agreed in Oran, Algeria, to cut supply by 9 percent starting Jan. 1 to 24.845 million barrels a day.

“The goal here is to stabilize the market as the primary objective rather than meeting the OPEC target” said Paul Horsnell, head of commodities research at Barclays Capital, who was interviewed in New York. “It’s fairly clear that there is an extreme supply-side tightening in progress. That’s what will sort things out.”

Historic Reduction

The group needs to make the deepest supply reductions in its history to comply with the new target. The 11 OPEC nations with quotas produced an average of 27.45 million barrels a day in December, according to data compiled by Bloomberg News.

“There are a lot of people in the market, analysts included, who doubted the credibility of the OPEC cuts,” Horsnell said.

The group won’t know the full effect of its latest production reduction until Feb. 15, OPEC’s secretary general, Abdalla El Badri, said in an interview with OPEC Bulletin, a monthly magazine published on the group’s Web site.

“It’s political, it’s trying to put pressure on others who are not complying so well,” said Leo Drollas, deputy director of the Centre for Global Energy Studies, a London-based consulting company. “All announcements like this give some traders a reason to buy.”

Economic Contraction

The U.S. economy will contract 1.5 percent this year, a half percentage point more than projected last month, according to the median of 59 forecasts in a survey taken from Jan. 5 to Jan. 12 by Bloomberg News.

“The Saudi comments are giving us a bit of support but I doubt they will be enough to keep the market in positive territory,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “The economy is in terrible shape, which is putting pressure on almost all commodities.”

Falling demand for raw materials has hit most commodity markets. The Reuters/Jefferies CRB Index of 19 raw materials has declined 53 percent since reaching a record in July. The gauge rose 1.64, or 0.7 percent, to 222.19 today.

Brent crude oil for February settlement rose $1.92, or 4.5 percent, to settle at $44.83 a barrel on London’s ICE Futures Europe exchange.

U.S. crude-oil stockpiles probably gained 2.75 million barrels in the week ended Jan. 9, according to the median of 14 responses by analysts in a Bloomberg News survey. The department will release its weekly petroleum supply report tomorrow.

The price of oil for delivery next December is 55 percent more than for February, allowing traders to profit if they have the ability to store crude. This structure, in which the subsequent month’s price is higher than the one before it, is known as contango.

Rising Supplies

“We are going to see crude oil inventories continue to rise in the months ahead because the contango is spectacular,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut.

Volume in electronic trading on the exchange was 657,607 contracts as of 3:09 p.m. in New York. Volume totaled 591,402 contracts yesterday, up 27 percent from the average over the past 3 months. Open interest yesterday was 1.21 million contracts. The exchange has a one-day delay in reporting open interest and full volume data.

Inventories of gasoline and distillate fuel, a category that includes heating oil and diesel, rose, according to the Bloomberg News survey.

Gasoline futures for February delivery increased 6.48 cents, or 6 percent, to settle at $1.1489 a gallon in New York. Heating oil for February gained 4.17 cents, or 2.8 percent, to end the session at $1.5141 a gallon.

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

Last Updated: January 13, 2009 17:44 EST