Oil up as OPEC set to defend price target

Oil up as OPEC set to defend price target

Reuters, London

Oil prices rose on Thursday, extending the previous day's gains on signals from OPEC that the cartel could make deeper supply cuts to stem a recent price slide.

Benchmark Brent crude oil rose 29 cents to US$23.29 per barrel, extending Wednesday's 42 cent gain. U.S. crude futures climbed 34 cents to $26.14.

The cartel of mostly Middle Eastern oil exporters last week agreed to raise its formal output ceiling, but promised to wipe out a recent surge in production to cover for the halt in Iraqi exports.

Markets reacted coolly to the decision, wiping $3 per barrel off the value of OPEC's reference basket.

OPEC President Abdullah al-Attiyah said on Wednesday that ministers were consulting on how to intervene in the market to prevent prices falling further.

"Latest talk from OPEC favors an early cut in production," said Steve Turner of Commerzbank Securities in London.

OPEC's reference price basket of seven of its crudes fell to $23.27 per barrel on Tuesday, below the cartel's central $25 target. It peaked at above $33 in early March.

Also supporting sentiment on Thursday were latest figures for U.S. crude inventories, which showed a smaller-than-expected increase last week.

The U.S. Department of Energy reported national crude stocks rising by 1.8 million barrels to 288 million barrels as imports fell from the previous week's record high levels.

The increase was below market expectations of a 2.9 million barrel rise and left inventories nearly 12 percent below levels at the same point last year.

When OPEC announced last Thursday's agreement, ministers emphasized it was the first in a series of cuts, the second of which could be decided at a June 11 meeting in Doha.

The Organization of the Petroleum Exporting Countries, which controls about half of world oil exports, has said it expects to make further cuts to accommodate the return of Iraqi exports over the next few months.