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Oil rises above $44 after UAE cuts Asia supply

26/02/09

By Christopher Johnson

LONDON (Reuters) - Oil rose above $44 a barrel on Thursday after the United Arab Emirates announced deeper cuts in crude supply to Asia for April in a possible signal that OPEC will cut output further at its next meeting in March.

Abu Dhabi National Oil Co (ADNOC), the main oil supplier in the UAE, said it will sell customers less of its flagship Murban crude oil and three other main grades in April than in March.

The move came as a surprise to traders, who had expected the UAE to keep April supply curbs largely unchanged.

U.S. crude for April delivery was up $1.53 cents at $44.01 a barrel by 9:20 a.m. EST, after hitting an intra-day high of $44.13. London Brent crude gained 96 cents to $45.25.

Edward Meir, analyst at MF Global in New York, said the market was expecting further cuts in production by the Organization of the Petroleum Exporting Countries:

"Crude oil prices could work slightly higher from here, (likely in fits and starts), as we approach the OPEC meeting, and as participants begin to discount another likely cut."

"However, even if OPEC was to go ahead with its cut, we have our doubts that prices will move substantially above the $50 mark; that seems to be a fair price for oil right now given the poor macro backdrop," Meir said.

U.S. STOCKS

U.S. crude futures surged $2.54, or more than 6 percent on Wednesday after U.S. data showed a larger-than-expected drop in gasoline stocks as demand rose on cheaper prices.

The U.S. Energy Information Administration said gasoline stocks fell 3.4 million barrels in the week to February 20, against a forecast for just a 100,000-barrel draw.

The data also showed a 1.7 percent rise in U.S. gasoline demand over the four weeks ending February 20, as low gasoline prices lured U.S. motorists back on the roads.

This helped oil shrug off a drop in U.S. equities markets, which fell after U.S. President Barack Obama's first address to Congress shed little new light on how he plans to stabilize the economy and shore up banks.

European shares hit a six-year low on Wednesday but recovered on Thursday morning.

Abu Dhabi's move to cut allocations may pre-empt a decision by OPEC to cut more when the group meets in Vienna in March.

Reports this week have shown high compliance by OPEC members on production cuts agreed last year to stem the slide in oil.

OPEC has promised to cut 4.2 million barrels per day (bpd) from its production levels in September and surveys suggest its members have implemented almost all of their cuts.

Venezuelan Finance Minister Ali Rodriguez, a former president of OPEC, said his country expected to propose new output cuts.

Global energy consumption has collapsed as the financial crisis has thrown most major economies into recession, bringing oil prices down more than $100 since their peak in July.

Financial markets are awaiting data on U.S. weekly jobless claims and January durable goods orders at 1330 GMT, which are likely to show slumping business investment and rising unemployment in the world's top oil consumer.

(Additional reporting by Jennifer Tan in Singapore; editing by Peter Blackburn)

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