Oil jumped more than 3 percent to over $47 a barrel on Monday on speculation producer group OPEC may cut output again and a naval incident between the United States and China, the world's top oil consumers.
Crude prices are up, I think, in a knee-jerk reaction to the news of Chinese vessels harassing a U.S. Navy ship in the South China Sea, said Phil Flynn, analyst at Alaron Trading in Chicago.
U.S. crude rose $1.65 to $47.17 a barrel by 1:43 p.m. EDT. London Brent crude fell 9 cents to $44.76 a barrel.
Crude prices have dropped from record highs over $147 a barrel hit in July as the economic crisis crimps demand. The Organization of Petroleum Exporting Countries agreed a series of deep cuts last year in an effort to stem the fall, and next meets on March 15 to set output policy again.
OPEC Secretary-General Abdullah al-Badri said the 12-member producer group would consider reducing output again at the meeting.
All options are on the table, he told reporters in Qatar when asked if OPEC, which pumps more than a third of the world's oil, would announce another reduction.
Top OPEC exporter Saudi Arabia, however, wants the cartel to discuss stricter compliance with existing supply curbs, a Saudi-owned newspaper reported, and cited sources as saying the group should not discuss another cut.
OPEC has agreed to lower oil production by a total of 4.2 million barrels per day from September levels and a Reuters survey suggested the group has come close to meeting that pledge with compliance of more than 80 percent.
Saudi Arabia already plans to lower supplies to one European oil company in April, according to a trading source.
I think they will seek better compliance with existing quotas, said Christopher Bellew, oil broker at Bache Commodities in London.
My feeling is that OPEC is able to prevent further price weakness but until the over-hang of oil stocks begins to be eroded, they will struggle to raise prices.
Royal Dutch Shell
(Reporting by Matthew Robinson, Gene Ramos, and Robert Gibbons in New York; Joe Brock, Chris Baldwin and Christopher Johnson in London; editing by Jim Marshall)