Oil Tops $56 as Cold Weather, Economic Growth Boost Demand
By Mark Shenk
Jan. 30 (Bloomberg) -- Crude oil surged above $56 a barrel on speculation that cold temperatures and an improving economy will spur fuel consumption.
The National Weather Service predicted that below-normal temperatures will persist in the eastern U.S. for the next two weeks, and the price of natural gas, the country's most common home-heating fuel, jumped more than 11 percent. Consumer confidence in the U.S., where 25 percent of the world's oil is consumed, neared a five-year high, a report today showed.
``It's finally gotten cold, which will boost demand for natural gas and heating oil,'' said Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons in St. Louis. ``There's been a steady stream of good economic news in the U.S. It's gotten to a point where the energy markets can no longer shrug off the economic numbers.''
Crude oil for March delivery rose $2.49, or 4.6 percent, to $56.50 a barrel at 1:44 p.m. on the New York Mercantile Exchange. Futures touched $56.65, the highest intraday price since Jan. 8. Prices are 17 percent lower than a year ago. Brent crude oil for March settlement increased $2.35 to $56.03 a barrel on the London-based ICE Futures exchange.
The Conference Board's index of U.S. consumer confidence rose to 110.3 this month, the highest since May 2002, from a revised 110 the prior month, the New York-based group said today. Retail sales rose 0.9 percent in December, the most in five months, the government said on Jan. 12.
Heating Demand
Heating demand in the U.S. Northeast, where 80 percent of the nation's heating oil is used, will be 20 percent above normal in the next week, according to Weather Derivatives, a forecaster in Belton, Missouri.
Heating oil for February delivery rose 6.91 cents, or 4.5 percent, to $1.618 a gallon in New York. Natural gas for March delivery rose 77.3 cents to $7.71 per million British thermal units in New York.
``The market is caught in the crosscurrents of two different forces,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. ``One is the weather and the other is the OPEC situation.''
The Organization of Petroleum Exporting Countries agreed in December to cut output by 500,000 barrels a day as of Feb. 1. That's on top of a reduction of 1.2 million barrels a day that went into effect in November.
OPEC Cuts
Saudi Arabia, OPEC's biggest producer, plans to trim output by a 158,000 barrels a day starting Feb. 1, the Wall Street Journal reported today, citing an unidentified senior Saudi official.
``The market is vacillating on OPEC comments, especially those coming from the Saudis,'' said Phil Flynn, vice president of risk management with Alaron Trading Corp. in Chicago. ``Oil fell when the Saudis said they were happy with where prices were. They seem to be contradicting themselves because you wouldn't need to make further cuts if you were happy with prices.''
Prices fell when Saudi Arabian Oil Minister Ali al-Naimi on Jan. 16 rejected calls from other OPEC members for an emergency meeting to discuss an additional reduction. OPEC's next regularly scheduled meeting is March 15 in Vienna, where oil ministers will discuss the level of crude oil production for the second quarter of the year.
Stable Prices
``I don't think prices will go down; they will stabilize at around $50 a barrel,'' Algerian Oil Minister Chakib Khelil said today in an interview in the Algerian oil city of Hassi Messaoud. ``There shouldn't be another production cut.''
The 500,000 barrel-a-day cut this week comes on top of an OPEC reduction of 1.2 million barrels that went into effect in November. OPEC's December crude-oil production was 28.62 million barrels a day, a decline of 1.3 million barrels, or 4.3 percent, since July, according to a Bloomberg News survey.
``There are arguments about how good OPEC compliance is, but the fact remains that month after month they have been taking barrels off the market,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York.
An Energy Department report tomorrow is expected to show that U.S. crude oil and gasoline inventories rose last week, according to the median of responses by 11 analysts surveyed by Bloomberg News. Analysts said the report will show supplies of distillate fuel, a category that includes heating oil diesel, fell for the first time in seven weeks.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net .
Last Updated: January 30, 2007 13:50 EST |
