Oil Gains as OPEC Fails to Agree Quotas; U.S. Supplies Decline

Oil rose for a third day in New York on speculation that OPEC’s failure to reach an agreement on output targets for the first time in at least 20 years may limit supply as U.S. inventories fell more than analysts forecast.

Futures gained as much as 1 percent after climbing 1.7 percent yesterday. The Organization of Petroleum Exporting Countries will maintain its current output for now, said Mohammad Aliabadi, the acting Iranian oil minister and OPEC president. A U.S. government report showed crude supplies dropped the most since December.

“In the short run, this is price supportive,” Andrey Kryuchenkov, London-based analyst at VTB Capital said today in a note. “No change to production targets means the market remains prone to price spikes, leaving it vulnerable to supply shocks and various disruptions.”

Crude for July delivery rose as much as 96 cents to $101.70 a barrel in electronic trading on the New York Mercantile Exchange, and was at $101.56 at 1:36 p.m. London time. The contract yesterday climbed $1.65 to $100.74, the highest settlement since May 31. Prices are up 36 percent the past year.

Brent crude for July delivery was at $118.15 a barrel, up 30 cents, on the London-based ICE Futures Europe exchange. The contract yesterday climbed $1.07, or 0.9 percent, to $117.85. It was the highest close since May 4.

Proposed Increase

The European benchmark contract traded on the ICE exchange at a premium of $16.70 a barrel to U.S. futures today.

Saudi Arabia, OPEC’s biggest producer, Kuwait, Qatar and the United Arab Emirates were ready to supply more oil to the market, according to Saudi Arabian Oil Minister Ali Al-Naimi. The four nations proposed a 1.5 million barrel-a-day increase from the current 28.8 million, he said.

Libya, Angola, Ecuador, Algeria, Iran and Venezuela were opposed to higher limits, according to Naimi. Iraq is exempt from the targets. The 11 members subject to quotas produced 26.22 million barrels a day last month, 1.375 million more than pledged, according to Bloomberg News estimates.

“You may start to see higher oil prices as the question mark over future supply grows larger,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, who predicted oil will average $113 a barrel in the third quarter. “There is now some question arising as to how willing OPEC is to step in and fill the breach.”

‘Bullish Statement’

OPEC’s lack of agreement “sent a bullish statement to the market stating that a large share of the OPEC members are content with the current oil price level,” Bjarne Schieldrop, chief commodities analyst at SEB AB, Sweden’s third-biggest bank by market value, said in a note.

“What matters on the physical side is that with little oil out of Libya and Yemen, the global oil market is likely to need up to 2 million barrels a day of extra supply quarter-on-quarter moving into the third quarter due to seasonally higher demand,” he said.

Oil may climb as high as $150 a barrel in the next few months after yesterday’s OPEC meeting and comments this week by Federal Reserve Chairman Ben Bernanke who said the U.S. economic recovery was “frustratingly slow,” JBC Energy GmbH said in an e-mailed statement.

“OPEC’s abandonment of the $70 to $90 range and a prolonged period of cheap money could take oil prices in a first step to $125 and in a next step to $150 within the next few months,” analysts led by David Wech said in the report. “Whether such a target can be reached, and for how long, will depend on the extent and speed of demand ‘destruction.’”

IEA ‘Disappointed’

The International Energy Agency said it was disappointed that OPEC failed to agree on an increase in output, according to a statement e-mailed yesterday. “Ongoing supply disruptions, as well as the fragile state of the global economy, call for a prompt increase in supply,” the Paris-based group said.

Brent has advanced 24 percent this year as unrest in the Middle East and North Africa toppled leaders in Tunisia and Egypt and spread to Libya. The fighting in Libya has removed about 1.5 million barrels a day of output from market.

Daily Brent loadings for July will rise by 13 percent, according to a loading program obtained by Bloomberg News. A total 4.2 million barrels of the grade, or 135,484 barrels a day, are scheduled to load next month compared with 120,000 barrels a day in June, the program shows. The number of cargoes will increase to seven from six.

U.S. crude stockpiles decreased 4.85 million barrels to 369 million last week, the biggest decline this year, according to the Energy Department. A 1.38 million-barrel drop was forecast, according to the median of responses in a Bloomberg News survey of 14 analysts.

Gasoline supplies climbed 2.21 million barrels to 214.5 million, according to the Energy Department. They were forecast to rise 1.1 million barrels, the Bloomberg News survey shows.

Oil markets are also looking ahead to U.S. economic data later in the session, Schieldrop said. Initial jobless claims fell by 3,000 to 419,000 in the week ended June 4, according to the median forecast of economists surveyed by Bloomberg News.

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