Oil tops $39 on talk of output cuts
OPEC signals it may reduce production again at its March meeting. U.S. inventories on tap.
LONDON (Reuters) -- Oil rose more than 3% to above $39 a barrel on Wednesday as OPEC kept up talk of production cuts and a cold snap in the United States boosted heating oil demand.
Top exporter Saudi Arabia said on Tuesday it was prepared to go even further than cuts it had made since December if the market warranted it, while OPEC's secretary general said the cartel may reduce oil output again at its meeting in March.
But analysts said downside risks remained high. A U.S. government report due later in the day is expected to show crude oil stocks rising for the third consecutive week, by more than 2 million barrels.
U.S. light crude for February delivery rose $1.30 to $39.08 a barrel in electronic trading.
"Oil was boosted by U.S. weather and Saudi Arabia's comments in the previous session but the trend is still down, with lower energy demand in focus," Michelle Kwek, an analyst at Informa Global Markets in Singapore, said.
"The EIA data due later is also expected to show a build-up in stocks and that will again reflect waning demand in the United States."
U.S. crude oil stocks have swelled as demand in the top oil consumer wilts, pushing U.S. crude futures into a deep discount compared with Brent crude.
A Reuters poll ahead of Wednesday's U.S. inventory report saw a 2.2 million barrel build in crude stockpiles in the week to Jan. 9, and distillate and gasoline supplies rising by 1.1 million and 1.6 million barrels respectively.
The global financial crisis, the worst since the 1930s, has pushed much of the industrialized world into recession, causing oil demand to slump and crude prices to tumble by more than $100 from its record peak of above $147 a barrel last July.
Saudi Oil Minister Ali al-Naimi said on Tuesday the world's biggest exporter would pump below its OPEC production target of 8.05 million barrels per day in February and is prepared to go even further to halt the drop in prices.
"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, adding that Saudi Arabia alone has already cut supplies by 1.7 million bpd.
OPEC's secretary general also said the cartel may cut oil output further at its meeting in March if the market remains oversupplied a month from now, while OPEC-member Qatar said a price of $70 a barrel was right for oil as it allows companies to invest in new resources.
The grouping of oil producers agreed last month to its largest ever production cut of 2.2 million barrels per day, bringing cuts since September to 4.2 million barrels, or around 5 percent of world supply.
Oil's gain on Wednesday was also buoyed by a cold snap in the U.S. Northeast, the world's biggest heating oil market, with temperatures forecast to be well below normal in the next week.
The winter chill is expected to cause heating oil demand to be 13.7% above normal this week, the National Weather Service said. 
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