By Christopher Johnson
U.S. crude oil futures for February rose to a high of $39.50, up $1.91, before easing back slightly. By 11 a.m. EST, the contract was at $38.44.
February Brent jumped to a high of $45.59, up $2.68.
The moves followed comments by Saudi Arabian Oil Minister Ali al-Naimi that the kingdom would pump below its OPEC production target of 8.05 million bpd in February.
"If there is a need to do more, we will do so because our purpose is to bring things in balance," Naimi told reporters in New Delhi. "We will look and see whether we need to take more. If we need to, if inventories keep rising, we will reduce."
"We have taken -- Saudi Arabia alone -- 1.7 million (bpd)" (off the market), he said.
Dealers said the market was also supported by a blast of cold winter weather in the northern hemisphere and improved crack spreads boosting refined products.
"The Saudis are working pretty hard to get this market up and trying to get the other OPEC members to cut output as well. There is no doubt about it -- $40 crude is not very good for them," said a trader at a large London brokerage.
"It is still quite cold so that is also probably having an impact on the market," he added.
BULGING U.S. INVENTORIES
The Saudi comments helped turn around a market that had looked very bearish ahead of what many analysts expect will be data on Wednesday showing further builds in U.S. oil stocks.
A Reuters poll ahead of Wednesday's U.S. inventory report forecast crude stocks rose by 2.2 million barrels last week, the third weekly gain. <EIA/S>
Three major forecasters are scheduled this week to update their outlooks for world oil demand as the global economic slowdown bites, and some analysts expect the reports may lower demand forecasts for 2009 further.
The spread between Brent and U.S. crude has widened sharply as high inventory levels pressure the U.S. benchmark. Stock levels at Cushing, Oklahoma, the delivery point for U.S. crude futures, are at record levels.
Slumping fuel demand due to the global slowdown sent oil prices down 54 percent last year, and crude is now off more than $110 from its record high of $147.27 a barrel last July.
The global economic situation is worsening and new forecasts to be released shortly from the International Monetary Fund will not be optimistic on the outlook, IMF Managing Director Dominique Strauss-Kahn said.
(Additional reporting by David Sheppard in London, Fayen Wong in Perth and Chua Baizhen in Singapore; editing by James Jukwey)