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 Infopetro -> Industry in Focus


Warmer Weather Could Spark Crude Price Rise

  01/10/2005

Crude oil prices may fall this week as warmer-than-normal weather in the eastern United States cuts demand for heating fuel and refineries boost supplies, according to a survey by Bloomberg.

Twenty-one of 50 respondents, or 42 per cent, said oil prices will drop. Seventeen said prices would be unchanged and 12 forecast a rise. Two weeks ago, 43 per cent of survey respondents said prices would fall and 41 per cent forecast a gain.

"Weather forecasts are calling for above-normal temperatures through the middle of this week, which will reduce demand," said Dariusz Kowalczyk, senior investment strategist in Hong Kong at CFC Securities Ltd. The high processing rates at US refineries "will result in a large local production of heating oil."

US refineries used 94.8 per cent of their capacity in the week ended December 31, the highest since the week ended on September 10, an Energy Department report on January 5 showed.

Production of distillate fuel, the category that includes heating oil and diesel, surged to a record 4.3 million barrels a day last week, according to the department.

Crude oil for February delivery rose US$2.11, or 4.8 per cent, to US$45.56 a barrel on the New York Mercantile Exchange in the week through last Thursday. Prices have declined 18 per cent since reaching US$55.67 a barrel on October 25, the highest since futures began trading in New York in 1983. Oil was at US$45.38 a barrel, down 18 cents, in electronic trading at 10:13 am London time on Friday.

Eleven of the last 15 surveys correctly predicted the market's direction.

Temperatures will surpass the seasonal average by 7 C in the Northeast, where demand for heat may be 38 per cent below normal this week, according to forecaster Weather Derivatives Inc of Belton, Missouri. The region consumes about 80 per cent of the heating oil used by US homeowners.

Heating oil for January delivery rose 5.16 cents, or 4 per cent, to US$1.2813 a gallon in New York in the week ended on Thursday. It was last at US$1.2728 a gallon.

"The current cold weather will keep prices up for the next few days, but milder weather will bring the bears back out this week," said Michael Lynch, president of Strategic Energy & Economic Research, a consulting firm in Winchester, Massachusetts.

Heating-oil supplies surged 1.1 million barrels to 50 million barrels two weeks ago, the Energy Department said. It was the largest weekly rise in the nation's heating-oil supplies since September.

"Heating oil stocks remain the only key driver of day-to-day prices at the moment, and we expect to see further gains in stocks in the US over the next week," said Daniel Hynes, an industry analyst at Australia & New Zealand Banking Group Ltd. in Melbourne. "This should see prices ease even further."

Analysts who expect prices to rise cited OPEC's plan to lower production and increased unrest in Iraq. The Organization of Petroleum Exporting agreed on December 10 to cut output by 1 million barrels a day beginning January 1. OPEC ministers will discuss production targets and prices in Vienna on January 30.

Saudi Arabia has lowered production by 500,000 barrels a day, Saudi Oil Minister Ali al-Naimi was quoted as saying this week.

"Prices will rise in the run-up to the double whammy of an Iraqi election and OPEC meeting, both on January 30," said Marshall Steeves, an analyst at Refco Group Inc in New York. "Security of Iraqi oil facilities and uncertainty regarding OPEC output policy will support the market."

Oil shipments from Iraq have been reduced by attacks on pipelines in the past several months. Iraqi Prime Minister Ayad Allawi extended the country's state of emergency by 30 days on Thursday to help control the violence as an election approaches.

Sabotage of oil infrastructure has hampered Iraq's ability to restore exports to the rate of before the 2003 US-led invasion.

Oil prices rose 34 per cent in 2004 and averaged a record US$41.47 a barrel as demand surged and unrest in Iraq, Saudi Arabia and Nigeria threatened shipments.

(Chinadaily Jan. 2005)



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