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Oil rises 10 percent after OPEC calls for "severe" cut

NEW YORK (Reuters) - Oil surged more than 10 percent on Thursday, settling at nearly $48 a barrel after the OPEC president called for more “severe” production cuts and the dollar fell to a seven-week low versus the euro.

News that Russia’s President Dmitry Medvedev said the country was ready to work with OPEC on possible oil output cuts lent additional support to the market.

“We are starting to see the real engine for lifting oil prices, cuts in OPEC production, and it seems likely they will cut production at their meeting next week,” said Tim Evans, energy analyst for Citi Futures Perspective.

“Also in the background is Russia rumbling about possible coordination with OPEC and that is bullish if carried out,” he added.

U.S. crude settled at $47.98 a barrel, up $4.46, or 10.25 percent, continuing a rebound from near four-year lows hit last week. It was the biggest single-day percentage gain since November 4, when prices ended up 10.36 percent.

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European benchmark Brent crude settled at $47.39, up $4.99.

Oil prices are down almost $100 from a record peak of $147.27 scaled last summer as a global financial crisis hits consumer demand for fuel.

OPEC should agree on a more “severe” reduction in output at the meeting next week in Algeria, OPEC President Chakib Khelil said in remarks published on Thursday, which made no mention of a figure.

Saudi Oil Minister Ali al-Naimi said the world’s largest exporter pumped 8.49 million barrels per day of oil in November, less than estimated by analysts and in line with its OPEC target.

An employee fills the tank of a car at a gas station in Nanjing, Jiangsu province, December 6, 2008. REUTERS/Sean Yong

That would put the kingdom’s output at 560,000 bpd less than the IEA’s estimate of Saudi November production, published earlier on Thursday, of 9.05 million bpd.

Industry sources told Reuters on Wednesday they expected January shipments to be below Saudi’s existing OPEC target, implying it expects OPEC to agree a further supply cut when the producer group meets in Algeria on December 17.

OPEC member Ecuador also said it wants to slash oil output at the Algeria meeting to stabilize the market.

Russia, which will attend the Algerian meeting as an observer amid calls from some members for Moscow to join in output curbs, said Wednesday it will present its own proposal at the talks.

The U.S. dollar weakened after data on weekly U.S. jobless claims came in worse than expected [ID:nN11392744]. A weak dollar can boost investor demand for oil and other dollar-denominated commodities.

RETURN OF DEMAND

A prediction from the International Energy Agency that world oil demand growth would rebound in 2009 after shrinking this year for the first time since 1983 was also supportive. The IEA also cut forecasts for supply outside OPEC next year.

The IEA’s view that demand will grow in 2009 contrasts with that of the U.S. government’s Energy Information Administration, which this week forecast consumption would fall by 450,000 barrels per day (bpd) next year.

The Paris-based IEA also lowered forecasts for supply from outside OPEC in 2009, leading to a 200,000 bpd increase in the amount it said OPEC needs to pump to balance the market.

Additional reporting by Alex Lawler in London, Anna Mudeva in Poznan and Jennifer Tan in Singapore; Editing by Christian Wiessner

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