Oil: Price rises on uncertainty about weather, Opec

LONDON - Oil prices rose today, supported by uncertainty about the weather over the coming months and expectations that Opec will cut output when it meets next month.

US prices have fallen almost US$4 since mid-December as warmer than usual US weather curtailed heating fuel demand.

Some analysts said the drop had now priced in the impact of the more mild temperatures, a week since winter officially began.

"At the start of the winter, they talked about a colder than expected winter; now they're talking about a warmer than expected one," said Sam Tilley, head of research at UK broker Sucden.

"We're not out of the woods with the weather yet."

February crude futures rose 89 cents to US$59.05 a barrel, having eased 27 cents on Tuesday, the first session of post-holiday trade.

London Brent crude was up 63 cents at US$56.92 a barrel.

Prices are up 33 per cent since January and have averaged US$56.66 a barrel, almost 37 per cent more than the 2004 average.

Analysts forecast a price of US$57.34 for 2006.

Temperatures across most of the United States have been unseasonably high for the past week and are expected to remain so through the weekend, forecasters say.

The Northeast region, the world's biggest heating oil market, will be 6-10 degrees Fahrenheit warmer than usual until Sunday, Meteorlogix said in a forecast on Wednesday.

Heating oil demand in the Northeast is expected to be about a quarter less than usual this week, the National Weather Service said.

The Midwest, which uses mainly natural gas for heating, will also be warmer than usual for the next week to 10 days, undermining high-flying natural gas prices.

Natural gas futures, which soared to record highs near US$16 per million British thermal units (mmBtu) in mid-December, have since fallen by about a third as a cold snap passes. The front-month contract was trading down 1.6 per cent at US$10.850 per mmBtu on Wednesday.

With warmer weather factored in, dealers will next be looking to weekly US oil inventory data for direction. The US government report will be released on Thursday instead of Wednesday due to the Christmas holiday.

US distillate inventories were likely to have been unchanged last week after milder weather reduced consumption, a preliminary Reuters poll of six analysts found.

Crude stocks were expected to have slipped 1.2 million barrels while petrol inventories dipped 300,000 barrels.

Winter heating fuel stocks in Japan, the world's third-largest consumer, fell again last week as frigid weather enveloped most of the country. Kerosene inventories fell more than 8 per cent to about 23.5 million barrels, industry data showed.

Kerosene stocks have fallen by a fifth over the past three weeks but remain well above the end-December average after a warm start to the season helped build a hefty stock buffer.

While crude supply concerns eased this week after Royal Dutch Shell said it had managed to restore most of its production in Nigeria after pipeline attacks a week ago, Opec looks set to trim output when it meets next month.

Iran viewed a one million barrel per day cut by Opec a "good figure" when the cartel meets on Jan 31, the country's oil minister said in a newspaper interview on Wednesday.

- REUTERS