Oil up on OPEC output cut; IEA lowers demand forecast

A motorist prepares to put fuel into her car at a petrol station in Melbourne in this July 3, 2008 file photo. Oil rose on Wednesday following a surprise decision by OPEC to cut production, after slowing demand from the United States and other large consumers sent prices down 30 percent over the past two months.

LONDON (Reuters) - Oil rose on Wednesday following a surprise decision by OPEC to cut production, after slowing demand from the United States and other large consumers sent prices down 30 percent over the past two months.

The Organization of the Petroleum Exporting Countries (OPEC) said it had agreed to revise its output targets to 28.8 million barrels per day (bpd), which the group's president said effectively meant reducing supply by about 520,000 bpd versus

July over the next 40 days.

"Since the market is over-supplied, the conference agreed to abide by September 2007 production allocations (adjusted to include new members Angola and Ecuador and excluding Indonesia and Iraq), totalling 28.8 million bpd," the group said in a

communique.

Most analysts had expected the group to maintain formal targets.

U.S. crude rose 68 cents to $103.94 a barrel by 0917 GMT. On Tuesday, it fell to as low as $101.74, the cheapest price in five months.

London Brent crude rose 77 cents to $101.11, after falling below $100 on Tuesday for the first time since April.

"We think this is a serious deal for a real cut...In this market, direction matters and this is a turn," UBS economist Jan Stuart said in a report.

However, the gains in prices were limited as the International Energy Agency (IEA) lowered its 2008 world oil demand growth forecast by 100,000 bpd due to the impact of weaker economic conditions and high prices in its monthly oil market report.

The IEA, adviser to 27 industrialised countries on energy policy, also trimmed its forecast for 2009 global demand growth by 40,000 bpd to 890,000 bpd.

Traders would shift their focus to the U.S. weekly oil statistics due out later on Wednesday for market direction.

Analysts in a Reuters poll expect U.S. government oil inventory data to show a sharp fall in crude oil and refined product stocks due to production and import disruptions caused by Hurricane Gustav.

Crude oil stocks in the United States were seen falling 4.4 million barrels in the week to Sept. 5. Gasoline stocks were seen down by 4.2 million barrels and distillates by 2.7 million barrels.

Hurricane Ike's progress toward the U.S. Gulf of Mexico kept most oil and natural gas production shut in for a second week.

Its path has recently shifted south and west of the biggest concentration of production platforms, aiming instead toward the Texas refining hub of Corpus Christi.