FOCUS-Oil climbs on Mexico meet hopes
(adds comment on Mexico talks, market reaction, closing prices)
LONDON, Oct 2 (Reuters) - World oil markets surged late on Friday, reversing an earlier wave of speculative selling by investment funds, as hopes rose for further output cuts.
London futures for November Brent blend crude, which limped 18 cents lower to $13.93 in intraday trading, closed 25 cents stronger at $14.36 a barrel.
Market players covered short positions to guard against a possible agreement on output cuts as oil heavyweights Saudi Arabia, Venezuela and Mexico met in Cancun on Friday.
''There are some shorts in the market. People are covering in case something comes out of the Mexico meeting,'' said one London futures trader.
The three countries were the architects of two rounds of production cuts which baled the market out earlier this year.
Although Mexico and Venezuela both underlined on Thursday that more cuts were not on the agenda for Friday's gathering, some media reports suggesting Mexico was being pressured to extend its output cuts beyond the end of 1998 gave market players enough incentive to cover positions.
''We don't need to discuss that now,'' said Venezuelan Oil Minister Erwin Arrieta on his arrival in Cancun.
Mexico's Luis Tellez has said his country might extend its efforts beyond the end of the year to match a commitment from OPEC producers -- including Venezuela and Saudi Arabia -- to observe supply restrictions until June 1999.
The outcome of Friday's talks were due to be made public at a news conference at 2130 GMT.
''TThere was an agreement...''a spokesman for Mexico's energy ministry told Reuters adding that a statement would be issued after the ministers gave brief presentations at the conference.
Dealers said although Brent climbed unexpectedly on Friday, world oil prices remained fragile. Thursday saw a heavy price slump as world stocks brimmed with oil, a blow to oil producers who have carefully nurtured a recovery in prices from August's 10-year low of $11.55 a barrel.
Dealers said a surprise rise in oil inventories in the United States this week, spoiling a six-week run of declines in the bloated stockpiles, had encouraged sellers.
Sickly profit margins for oil refiners this week have helped undermine the infant price recovery.
Some refiners in Asia and Europe were forced to reduce operations because crude prices had moved out of line with refined petroleum products.
Large inventories of heating oil stocks have already built up ahead of the northern hemisphere winter across the world's major refining centres.
Analysts say the year-on-year inventory surplus shrank in September but further action might be needed by oil producers if they wanted to eradicate it completely over the next few months.
Prices in dollars per barrel:
Oct 2 Oct 1
(close) (close)
IPE November Brent 14.36 14.11
NYMEX November light crude 15.64 15.43
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