Oil: Price holds firm near US$49 on US freeze

NEW YORK - High-flying oil prices held firm Monday as a weekend blizzard in the US Northeast strained tight heating oil stocks.

US light crude ended 28 cents higher at US$48.81 a barrel on the New York Mercantile Exchange, building on Friday's US$1.22 rally.

London Brent crude added 28 cents to US$46.01 a barrel on the International Petroleum Exchange, after touching its highest level since November 30 in early trade.

Crude prices have threatened to breach US$50 on threats to Iraqi oil flows ahead of Sunday's elections there and speculation that the Organisation of Petroleum Exporting Countries on the same day could announce an output cut.

"The organisation's decision, and the rumors that leak out before it is officially announced, could be a key factor in determining if prices do finally break over US$50, or continue trading in the upper US$40s," analysts at Washington-based PFC Energy said in a market comment.

Prices have climbed as blizzards blanketed large parts of the US Northeast, the biggest regional heating oil market in the world, pulling temperatures well below the seasonal average and pushing homeowners and businesses to fire up furnaces.

The temperature in the US Northeast was expected to remain well below normal for the rest of the week, but the outlook for the following week was warmer, private forecaster Meteorlogix said on Monday.

Traders worry that the freeze may sap heating fuel supplies, which remain below year-ago levels despite an unusually warm first half of the northern winter.

This week's influential US government data on petroleum supplies were forecast to show a decline in distillate stocks of 2.4 million barrels, a rise in crude stocks of 1.3 million barrels and a rise in petrol stocks of 700,000 barrels.

Oil dealers fear that sabotage against Iraq's oil infrastructure may escalate in the days leading up to or following the January 30 election.

Any additional disruption to Iraqi exports would add to pressure on global supply, which is still grappling with outages of nearly 500,000 barrels per day from Nigeria, Norway's North Sea, the US Gulf of Mexico and Canada.

Opec ministers said Monday that strong prices mean they may be able to resist cutting output, even though world supplies are running in excess of demand.

"On our oversupply there are different figures, but everyone agrees there is oversupply. But this does not mean we're going to cut (production)," said Iranian Oil Minister Bijan Zanganeh.

Zanganeh said Opec preferred to keep the price of its reference crude basket -- last valued at US$41.63 a barrel -- below US$40.

Indonesia's oil minister, Purnomo Yusgiantoro, said Monday current price strength means Opec should maintain existing production limits at Sunday's meeting.

Opec is keen to avoid an excessive stock build during the second quarter, when demand ebbs after the northern winter. The cartel's latest forecast projected that stronger-than-expected demand growth should help keep inventories under control.

- REUTERS