Oil: Oil up a dollar on winter weather worries

Oil prices rose well over a dollar on Friday, spurred by worries a cold spell in the United States could erode already depleted winter fuel inventories.

US light crude rose $1.57 a barrel to $45.75, the highest level since early December. London Brent was also $1.50 higher at $42.93 a barrel.

Prices have rallied by nearly 14 per cent this week, rebounding from a five-month low of $40.25 a barrel on Monday. They had shed more than $15 in seven weeks.

Big money speculative funds which had sold the market short for the first time in over a year leapt back in to cover positions this week, inspired in part by Opec's move to take one million barrels per day (bpd) of excess supply off the market.

US government data showing still low heating fuel inventories and the first decline in crude stocks for three months also drove gains on Wednesday, helping London's Brent crude to its biggest one-day surge since 1991.

Despite mild winter conditions until recently, heating oil inventories in the world's top consumer have remained stubbornly thin versus last year, fanning fears that weather-induced demand could strain supplies.

Temperatures are expected to fall below the seasonal norm next week in the second cold spell of the winter, bolstering demand for heating fuel, forecasters said.

"If the cold weather persists, then people will buy," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo. "We're at the top season of heating oil demand and inventory levels are below previous years."

CRUDE SUPPLIES CONSTRAINED

Temperatures in the US Northeast will dip by as much as 6-12 Fahrenheit below normal by Monday, private forecaster Meteorlogix said, while others saw it as much as 20 F below normal.

Heating oil futures in New York climbed even faster than crude prices, and were up 4.9 per cent compared with Thursday's close.

Although Opec said its planned output cuts from Jan. 1 were unlikely to affect stocks until after the winter because of the lag time in long-distance shipping, crude production has already been constrained elsewhere across the globe.

Ongoing outages in the United States, Nigeria, Canada and Norway are taking about 500,000 bpd of possible output off the market.

The storm surrounding embattled Russian oil producer YUKOS has also kept traders on edge, fearful the months-long saga could eventually tell on the company's 1.8 million bpd output.

Adding to nervousness about overstretched supplies, al Qaeda leader Osama bin Laden urged militants to concentrate their attacks on Iraqi and Gulf oil facilities, saying it was the most powerful weapon against America, according to a transcript of a tape played on the internet.

"The main driving reason behind the enemy's hegemony over our countries is to steal our oil, so do your utmost to stop the biggest robbery of our resources in history," said the speaker on the tape.

After the tape was first posted on the internet on Thursday, an intelligence official in Washington said an analysis had determined with "high confidence" that the tape contained the voice of bin Laden.

- REUTERS