Oil prices rallied from early losses , extending a rally of nearly 7% this week as Saudi Arabia's oil minister said more production needed to be removed from the market because of high U.S. fuel stocks.
Edmund Daukoru, who is Nigeria's oil minister and president of the 11-member Organization of Petroleum Exporting Countries, said the group is likely to trim production again and he expects a cut of at least 500,000 barrels a day.
"There is likely to be some further trimming, the actual amount will depend on the circumstances," said Daukoru. While the specific amount will be decided at the OPEC meeting based on data and trends, "I don't expect anything less" than 500,000 barrels per day to be cut, he said.
That echoed comments Thursday from Venezuelan oil minister Rafael Ramirez, who also said OPEC could cut production by half a million barrels a day when it meets Dec. 14 in Abuja.
"OPEC's first task is to comply 100% with the production cuts they've already promised the markets before talking about a second round of cuts," said Raymond Mazzeo, an analyst at Energy Merchant LLC. "Otherwise, they lose credibility."
U.S. Energy Secretary Sam Bodman said on Friday OPEC does not need to cut further because markets still need the oil.
The Energy Information Administration said OPEC will not have data registering the effect of the November cut on U.S. inventories by the Dec. 14 meeting and risks an "inaccurate" decision about a production cut.
A report showing a contracting manufacturing sector also weighed on the oil and natural gas markets. The Institute of Supply Management said Friday its manufacturing index registered 49.5 in November, the first time the sector contracted since April 2003. A reading below 50 indicates contraction.
Oil prices had jumped to two-month highs Thursday on news of declining U.S. fuel inventories and the approach of the Northern Hemisphere winter, when heating fuel demand rises. In addition, Vienna's PVM Oil Associates said "increased trading activity on the expiry day of the December contract may have also contributed to rising prices."
Venezuelan President Hugo Chavez said Thursday that OPEC members had reached a consensus to keep oil prices at $50 a barrel. The weekly average for the OPEC basket price this week currently stands above $56 a barrel.
Traders said Chavez's comment suggested that the 11-member group was not seeking a significant increase in crude oil prices. Others said they expected the market to regain an upward momentum, prompted in part by the approach of the Northern Hemisphere winter and declining U.S. stocks.
"Prices will rise again soon given lower U.S. oil stocks and with funds coming back to the market," said Ken Hasegawa, a broker with Himawari CX in Tokyo.