Oil: Pices rocket 6 per cent as US heating oil stocks fall

Oil prices surged more than two dollars on Wednesday as the US government reported a fall in heating oil stocks and cold weather gripped the US Northeast, the world's biggest heating fuel market.

US light crude jumped $2.43 or 5.7 per cent to $44.25 a barrel , in a third straight day of gains that has pushed prices up nearly $4 from four-month lows. Prices are now $11 a barrel below highs hit in late October.

Brent crude in London rose $2.95 a barrel to $42.20 a barrel as big-money hedge funds piled in to cover short positions.

Prices jumped after the US government reported that stocks of heating oil had fallen 100,000 barrels to 49.9 million barrels, a deficit of nearly 13 per cent from last year.

Crude stocks also slipped 100,000 barrels to 293.8 million barrels, the first weekly drop since mid-September, the Energy Information Administration said.

Heating oil stocks are low in all major consuming centres, deepening the threat of a cold snap if the northern winter is harsh.

German consumer stocks of heating oil slipped last month to 59 per cent of capacity on December 1, the lowest ever level at this time of year, trading sources said on Tuesday.

Oil prices are more likely to spike if inventories are low, as the market becomes more vulnerable to unexpected disruptions such as strikes, refinery fires or a jump in demand.

Private forecaster AccuWeather has predicted it will be colder than normal in the eastern US for the rest of December, raising demand for heating fuel.

"Now that we've really had some cold weather the numbers have changed the (market's) downward momentum and revived fears about winter fuel," said Phil Flynn, analyst at Alaron Research, Chicago.

US heating oil prices led the surge, adding 7.85 cents, or 6 per cent to $1.3830 a gallon. European gas oil prices were up $24.50 a tonne at $406.50 a tonne.

"This week's cold spell has already encouraged traders and hedge funds to cover their futures short positions," said SG bank in a report.

Strong demand for diesel fuel has further strained supplies available for heating. Distillate fuel demand over the last four weeks has averaged nearly 7 per cent above the same period last year, the EIA said.

"The thinking was that the recent high energy prices would make demand slow, but the demand for distillate has been strong. Trucks are full of goods and airlines are moving," Flynn said.

Prices have also been bolstered by last week's decision by the Organisation of the Petroleum Exporting Countries to take one million barrels per day off the market to try to stop a slide that wiped more than 27 per cent off prices in seven weeks.

Saudi Arabia, which is shouldering half the cuts, has told customers it will trim contractual supplies in January. Fellow Gulf producer Kuwait said its reduction would be met by lower oil product sales.

Supply problems in big Atlantic basin producers Norway and Nigeria have further tightened supplies -- shutting in a combined 225,000 bpd of oil output.

Doubts over supply from Russia's top oil exporter YUKOS resurfaced after the troubled firm was left out of plans that govern crude deliveries to export terminals.

Bailiffs will auction off YUKOS' core Yuganskneftegaz unit on Sunday to help recoup near-$27 billion back-tax bill. YUKOS has filed for bankruptcy proection in a US court in a bid to stop the auction.

- REUTERS