Oil: Prices climb to 6-week high as natgas rallies

NEW YORK - Oil prices surged more than US$2 on Thursday to their highest level in six weeks, tracking a nearly 10 per cent rally in natural gas as a cold snap cranked up furnaces across the Midwest.

US light crude rose US$2.03 to US$48.40 a barrel, up about 4.5 per cent. London Brent rose US$1.62 to US$45.30, while US heating oil gained more than 3.4 per cent.

"Natural gas and colder weather expected for the US next week are driving the whole complex higher," said Frederic Lasserre of SG Commodities.

Natural gas futures in New York were up 52.7 cents to US$6.47 per million British thermal units as frigid weather arrived in the US heartland. Natural gas is by far the most used heating fuel in the Midwest.

A cold snap reached the Upper Plains and is swooping into the Northeast by the weekend, where forecasters say it could linger for a week. The Northeast is the biggest regional heating oil market in the world.

While the winter has been mild so far, oil traders are say a sustained period of freezing weather could strain heating oil supplies, now about 7 per cent lower than last year according to the most recent government data.

Natural gas inventories meanwhile slipped 88 billion cubic feet -- less than expected -- to 2,610 bcf last week, with the draw concentrated in the eastern region.

Crude oil's gains added to a rally fired by petroleum stock statistics released Wednesday that showed a three million barrel draw on US crude inventories.

Global supply outages have underpinned strength.

More than 500,000 barrels per day (bpd) of output in the US Gulf of Mexico, Nigeria and Norway's North Sea remains offline, although Norwegian authorities have allowed for the restart of about half the 205,000 bpd of output halted by a gas leak in late November.

Iraqi exports have been reduced by continued sabotage on its northern pipeline infrastructure and power problems in the south, forcing Baghdad to cut all its February-June Basra Light sales contracts by 10 per cent, or about 160,000 bpd.

Worries that sabotage attacks will intensify around the planned Jan. 30 elections also have added a premium to prices.

Stormy weather has interrupted loading operations and tanker traffic in parts of the UK North Sea and at Latvia's Ventspils terminal and in Turkey's Bosphorus and Dardanelles straits.

The disruptions coincide with Opec's implementation of a 1-million-bpd output cut from Jan. 1.

The Organisation of the Petroleum Exporting Countries is scheduled to meet on Jan. 30 to discuss whether further cuts may be necessary as the northern winter ends and oil demand seasonally falls in the second quarter.

Some members say the cartel will consider tightening the taps if prices fall below US$40 a barrel.

- REUTERS