Oil: Price holds firm as US braces for cold

LONDON - Oil prices held firm on Monday, clinging to gains made in the last week as the key heating oil consuming region of the US Northeast braced for a cold snap that could test low winter fuel supplies.

London Brent crude futures traded up four cents at US$45.00 a barrel. With New York dealing shut for the Martin Luther King Day holiday, brokers were expecting thin trade.

US crude ended Friday 34 cents higher at US$48.38, taking the week's gains to 6.5 per cent amid a slew of production hitches, shipping delays and supply anxiety.

Icy weather forecast this week for the United States Northeast, the world's biggest heating oil market, was expected to boost demand and test already tight heating oil inventories that are seven per cent below year-ago levels.

Private forecaster Meteorlogix said on Monday it expected colder than normal weather in the US Northeast for the next 10 days.

Hawkish OPEC talk in the run up to the cartel's next meeting has also supported the market.

In a newspaper interview published on Saturday Iran underlined its position that the exporters' group should defend a price level around US$35 per barrel for OPEC's reference basket of crudes -- equivalent to about US$40 per barrel for US light crude futures.

"In OPEC, no one wants OPEC basket prices under US$34 to US$35," Oil Minister Bijan Zanganeh said.

On Monday, Algerian Energy Minister Chakib Khelil said OPEC would need to defend prices if it saw a sharp drop in demand.

The Organisation of the Petroleum Exporting Countries (OPEC) meets on January 30 to discuss output policy for the second quarter, when seasonal oil demand ebbs, after cutting output by 1 million bpd from the start of this month.

The market is also underpinned by a host of global supply disruptions that have cut 500,000 barrels per day (bpd) of output.

Iraq's polls, set for the same day as OPEC's meeting, have also unnerved traders, who fear the vote may spur sabotage attacks of the sort that have halted northern crude exports for a month.

"Energy markets are on the verge of having another go at US$50, which on the face of it should be a more than adequate level for OPEC as they start to ponder their policy directive come Jan 30," wrote brokers Refco in a report.

"In addition to this, the prospect of increased US heating demand that may well last through February has bolstered demand. But if by Monday the forecast becomes milder, then the heating oil rally should quickly reverse itself."

Speculative hedge funds, who have raised their profiles in energy markets over the past two years, are cautiously re-entering the oil market after slashing their holdings in the second half of 2004 from record long positions amassed in March.

Non-commercial speculators on the New York market raised their net long positions in crude by more than 1,000 lots to 8,614 lots in the week to January 11, their highest level in more than two months, US market regulators said on Friday.

- REUTERS