Oil: Price holds above $61 on Opec, US cold

LONDON - Oil held steady above $61 after Opec paved the way for a production cut early next year and forecasters predicted more cold weather in the northeast United States, the world's biggest heating oil market.

Adding to bullish sentiment, the International Energy Agency forecast an average 1.8-2.0 million barrels per day rise in global oil demand each year through 2010. That compared with a £1.18 million rise this year.

US crude was up five cents at $61.35 a barrel at 1550 GMT, after earlier rising as high as $61.80. London Brent crude was up two cents at $59.46.

Oil raced three per cent higher yesterday to close at its highest level since November 3 after Opec moved to pull output within an official £28 million limit and said an offer to sell all its spare oil would lapse.

While well below the record $70.85 level reached in late August, crude futures have rebounded a tenth this month and are still up more than 40 per cent so far this year.

"With WTI oil prices on track to average about $57 a barrel in 2005, we think the past phase will be remembered as the first of what could be a four-to-five-year 'super-spike' phase," Goldman Sachs said in a research report.

Opec, which supplies a third of the world's crude, said it would meet again in January, earlier than expected, with a view to cutting output in spring when demand normally eases.

The cartel states excluding Iraq have been producing around £200,000 above the group's ceiling after top producer Saudi Arabia and its fellow members ramped up output to a 25-year high in response to August's record prices.

"The support for the market is coming from the cold weather in the US and Opec basically coming out and saying they're looking to support prices above $50 with their decision on Monday," said Sam Tilley, head of research at brokerage Sucden.

"If prices do drop back, they will cut production."

The IEA raised its 2006 oil demand growth forecast by £130,000 to £1.79 million, reflecting strong buying from China and India, and predicted stronger growth over the following four years.

The agency, adviser to 26 industrialised nations, also raised its projection of demand for Opec oil in 2006 by £200,000 to £28.5 million.

"While the increase in Opec capacity through to the end of 2006 is comforting, stronger growth and continuing bottlenecks elsewhere in the value chain leave little room for unpleasant surprises," the IEA said.

Crude oil prices were also buoyed by forecasts predicting below-normal temperatures in the US northeast this week.

US demand for heating oil was expected to be about seven per cent above normal on the back of the colder weather, the US National Weather Service forecast on Monday.

The cold outlook prompted a surge in US natural gas futures to a record $15.65 per million British thermal units.

The front month contract is up more than two-fifths in the past two weeks.

After snow storms and freezing temperatures last week boosted winter fuel demand, US distillate stocks were forecast to have risen just 100,000 barrels for the week to December 9, according to a Reuters survey of analysts.

Inventories rose 2.7 million barrels the previous week.

US commercial crude oil stocks probably fell one million barrels, the analysts predicted ahead of data from the US Energy Information Administration (EIA) on Wednesday.

- REUTERS