Gulf Oil and Gas accountACCOUNT

Commodities Report: Crude Is Poised to Extend Climb

Source: www.gulfoilandgas.com 12/3/2006, Location: North America

The rapid rise in the price of oil over the past week marks a turnaround in a bear market and points to potentially higher prices against a backdrop of shifting supply forces. Since dropping to a 17-month low of $54.86 on Nov. 17, oil prices have been on a steady uptrend, jumping more than 7% this week alone to hit a two-month high of nearly $64 a barrel yesterday before settling at $63.13, up 67 cents.

The rally reflects a reassessment on the part of traders of a recent output cut by the Organization of Petroleum Exporting Countries, expectations of colder weather in the U.S. Northeast, tensions in the Middle East and surprise reductions in U.S. petroleum stocks. The prospect of another production cut by OPEC in December -- coming on the heels of a 1.2 million-barrels-a-day cut agreed to at an October meeting -- is only adding further fuel to the move.

"The rally is primarily based upon the belief that OPEC has started to decrease production," said Phil Gotthelf, president of brokerage Equidex in Closter, N.J.

After initially questioning OPEC's ability to fully implement the output cut, traders have grown convinced that the cartel is determined to tighten supplies to support prices and is actively taking steps to do so. At least two recent industry surveys pointed to a sharp drop in OPEC exports, indicating a greater degree of compliance with the output-cut agreement than many had expected.

The leap by crude futures outside their recent range of $57 to $62 a barrel points to the start of a new trend, according to traders and analysts.

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