Oil: Price of oil rises more than US$2 a barrel

Oil prices rose more than US$2 on Thursday as fund-buying and a rally in heating oil reversed two weeks worth of losses that had been triggered by a stretch of mild US winter weather.

US light crude surged US$2.16 to US$45.55 a barrel, bringing it back to the top of a US$40-US$46 trading range held since late December. London Brent rose US$2.34 to US$42.85 a barrel.

Dealers said the gains came amid heavy speculative buying in both crude and heating oil, despite continued mild temperatures in the eastern US that are expected to keep demand for heating oil at bay.

US heating oil futures soared 6.16 cents to US$1.28 a gallon.

The latest 6 to 10 day forecast from the National Weather Service, released Wednesday, showed temperatures unusually high in the eastern United States -- home to the main heating markets -- with cold in the west.

Frosty weather in the US Mid-Continent is also expected to make a dramatic turn to higher temperatures heading into this weekend, according to private forecaster Meteorlogix.

Players said a slightly-larger-than-expected draw in natural gas storage last week, however, was supportive.

The US Energy Information Administration said Thursday morning natural gas storage declined by 151 billion cubic feet (bcf) in the week ended Dec. 31, higher analysts' expectations of 135-140 bcf.

"The number was bullish relative to consensus expectations," said Katherine Spector, analyst with JP Morgan Securities.

The draw cut the US natgas supply surplus over last year to 3 per cent, from last week's 9 per cent, the EIA data showed.

Crude prices fell one per cent on Wednesday after a separate report from the EIA showed a two-million-barrel rise in the nation's stocks of distillate, including heating oil, in the final week of 2004.

The counter-seasonal increase in winter fuel supplies came as US refiners cranked up production to record levels and mild temperatures kept heating demand weak in the Northeast, the world's largest heating oil market.

But heating oil stocks are still nine per cent lower than the same time a year ago, leaving the US vulnerable to a prolonged cold spell.

Long-range forecasters said on Thursday the winter may average warmer than originally expected, but added that late January and February may bring some blasts of arctic weather.

Violence in oil producer Iraq ahead of elections at the end of the month, as well as Opec production cuts have helped to staunch selling, analysts added.

"Fundamentals are on the weaker side but geopolitical factors are holding things up," said Edward Meir of Man Energy.

Producers' cartel the Organisation of the Petroleum Exporting Countries has tightened fundamentals by cutting back production after an agreement struck in December to remove one million bpd of excess supply from the world market from Jan. 1.

Top exporter Saudi Arabia said on Tuesday it had sliced 500,000 bpd from its production, bringing it down to 9 million bpd. Qatar said on Wednesday it had implemented a cut of 40,000 bpd.

Opec is seeking to avoid a big build-up in global stocks ahead of the second quarter of the year, when oil demand drops at the end of winter.

Some Opec ministers have said the group might need to cut formal production limits of 27 million bpd when it meets on Jan. 30 to stop prices falling further.

Speaking in New Delhi on Thursday, Iran's oil minister said there was still too much oil on the international market.

"No one is doubting it," Iranian Oil Minister Bijan Zanganeh said when asked if markets were oversupplied.

- REUTERS