Oil nears 2-mth low on weak data, OPEC output talk

Saturday, 29 January 2011 00:03 - - {{hitsCtrl.values.hits}}

(Reuters) - U.S. crude futures fell on Friday to a near two-month low on weak economic data and talk of OPEC raising output to cool prices, while a rosier outlook for Europe supported Brent.

Jobless claims rose in the U.S. overnight while the head of Kuwait Petroleum Corp said OPEC may need to boost output as high oil prices threaten the global economy.

Farouk al-Zanki, head of Kuwait Petroleum Corp, told Reuters in Davos, Switzerland, he is concerned that current high oil prices may contribute to the start of another global downturn as they did in 2008.

“The first signs are emerging that OPEC is responding, with a thinly veiled call for an emergency OPEC meeting by a Kuwaiti official and indications others are unilaterally raising output,” JPMorgan analysts led by Lawrence Eagles said in its monthly oil report.

U.S. crude oil for March delivery fell 15 cents to $85.49 a barrel at 0449 GMT and is on track to extend its decline for a second straight week.

ICE Brent crude for March rose 38 cents to $97.77 a barrel.

Prices in the OPEC price basket have not risen high enough to justify a change in production quotas, said Ben Westmore, commodities economist at National Australia Bank.

However, “if this price trend continues, it’s likely that OPEC will look at raising output within the next six to 12 months,” he said.

The divergence in price movements of the two oil markers has pushed Brent crude’s premium against U.S. benchmark crude, also known as West Texas Intermediate, to its highest since 1988. The spread surged to $12.18 a barrel on Jan. 27 at settlement.

Near-record stocks in Cushing, Oklahoma, the delivery point for WTI contracts, have caused the prompt-month spreads to collapse “and the market is now firmly in the supercontango zone,” JPMorgan said in a Jan. 27 note.

In a contango market, the price of oil is progressively more expensive in future months than the front month.