Oil prices near $48 a barrel as dollar falls

HOUSTON -- Oil prices rose 10 percent Thursday as the dollar continued to lose value, making commodities like crude more attractive.

The falling dollar outweighed a new report from the International Energy Agency, which said energy demand is sliding sharply.

Crude prices have begun to rise before next week's meeting of OPEC, which is expected to slash production.

Congress also appeared closer to approving $14 billion in loans to Detroit's automakers, lending further support to crude prices.

"Probably the biggest factor right now is financials," said Phil Flynn, an analyst with Alaron Trading Corp. "The market is worried that all these bailouts ... means we're going to be printing a lot more money, which makes the dollar weaker. That's really supporting the price."

The U.S. dollar lost ground against other major currencies, making commodities like oil more attractive to investors as a hedge against inflation and dollar weakness.

The euro rose to $1.3227 on Thursday from $1.2988 late Wednesday in New York, while the dollar fell to 91.18 Japanese yen from 92.63 yen in the previous session.

Light, sweet crude for January delivery rose $4.34 to $47.86 a barrel in trading on the New York Mercantile Exchange.

The Paris-based IEA said Thursday that global oil demand will shrink this year for the first time since 1983. The IEA cut its forecast for global oil demand in 2008 by 350,000 barrels a day to 85.8 million barrels a day, down 0.2 percent from 2007.

The IEA also cut its forecast for global oil demand in 2009, saying it would increase by just 0.5 percent next year, to 86.3 million barrels a day. That was 200,000 barrels a day less than its estimate last month.

But Flynn said the report wasn't totally bearish.

"It kind of kept China demand fairly steady, so I think in a weird way the report was kind of bullish," he said.

Focus has remained on comments coming from the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global crude supply. The group has signaled it plans to slash output quotas at a meeting Dec. 17 in Algeria.

Many analysts expect production cuts of as much as 2 million barrels a day, which would match the combined reductions of two previous output cuts earlier this year.

Victor Shum, energy analyst at consultancy Purvin & Gertz in Singapore, said indications from Saudi Arabia -- the biggest oil producer in OPEC -- that it would cut production going into January boosted hopes of a significant output reduction.

Russia's plan to coordinate production levels with other non-OPEC producers also supported prices. Energy Minister Sergey Shmatko said Russia would soon make an announcement of its intentions with OPEC.

On Thursday, Russian President Dmitry Medvedev suggested that Russia is ready to work with OPEC.

"I'd like to say that we are ready to defend, our revenue base -- oil, gas. Moreover, such defensive measures could be connected with a reduction in oil output, and with the participation in the existing organization of producers," he was quoted as saying by RIA-Novosti and Interfax.

Shum said OPEC production cuts, which had failed in the past to curb plummeting oil prices, would not result in a rally but would stabilize the market and prevent any further downward spiral.

"There is a lot of bad economic news and if there is no meaningful cut by OPEC, oil pricing will come under a lot of downward pressure," he said.

What's more, he added, the success of any output cut in stabilizing the oil price will depend on how closely OPEC members comply with it.

In two separate announcements, OPEC said it would cut production by 2 million barrels a day.

OPEC's November production was well above quotas agreed to by member states, according to Platts, the energy information arm of McGraw-Hill Cos.

OPEC's 13 members pumped an average of 31.38 million barrels a day last month, a decline of only 880,000 barrels from the October level.

Oil prices have fallen 70 percent since peaking at $147.27 in July. After hitting $40.50 a barrel last week, some oil traders believe that if the market has not bottomed out, it is close to doing so.

"While we maintain our bearish bias, we are of the opinion the market has found a range in between the low $40s on the bottom and the mid $50s on the high end," oil trader and analyst Stephen Schork said in a report Thursday.

In other Nymex trading, gasoline futures jumped 11.7 cents to $1.0857 a gallon. Heating oil gained 11.3 cents to $1.5164 a gallon and natural gas for January delivery rose 2 cents to $5.705 per 1,000 cubic feet.