Bloomberg Oil Rises to a 2-Month High on Optimism Economy Will Improve

By Mark Shenk
March 16 (Bloomberg) -- Crude oil rose to a two-month high in New York on optimism that the recession may end by the close of the year.

Oil futures increased after the Group of 20 vowed to clean up toxic assets and Federal Reserve Chairman Ben S. Bernanke said the slowdown may end this year. Prices fell as much as 5.7 percent earlier today after the Organization of Petroleum Exporting Countries yesterday deferred another production cut for at least 11 weeks.

“There are finally signs of an improving economy,” said Ric Navy, a broker at BNP Paribas SA in New York. Crude oil prices “will soon head toward the recent highs and may peak above $50.”

Signs of Improvement

OPEC has reduced daily output targets by 4.2 million barrels since September to prevent a glut and slow the decline in prices. The group is scheduled to meet again on May 28.

“OPEC has a delicate balancing act,” said Gene Pisasale, an analyst who helps manage $13 billion at PNC Capital Advisors in Baltimore. “They want to avoid the impression that they are aggressively working to raise prices at a time when the world is facing a severe contraction. At the same time their cash flow argues for just that.”

“The last thing OPEC wants to do is give bullish speculators a reason to start buying this market to bid prices up to unfair levels,” Stephen Schork, president of Schork Group Inc. of Villanova, Pennsylvania, said in an interview with Bloomberg Television. That could “ultimately retard the recovery globally and therefore keep demand depressed for longer than it needs.”

IEA Forecast

The Paris-based International Energy Agency last week cut its 2009 forecast for oil demand for a seventh month. Both the IEA and OPEC see demand slumping more than 1 million barrels a day this year, to about 84.5 million. more...