Oil: Prices firm over US$47 on tighter outlook

NEW YORK - Oil prices firmed above US$47 a barrel on Friday, bolstered by a tightening outlook for market fundamentals and concern Opec may cut its output this spring.

US oil rose 6 cents to US$47.16 a barrel, the fourth day of gains in a row, while London Brent gained 32 cents to US$44.80 a barrel.

The strength adds to US crude's US$1.50 rally Thursday triggered by the International Energy Agency's report pointing to a tight market in 2005.

The IEA, adviser on energy policy to industrialised nations, said the pace of oil supply expansion outside of the Opec cartel this year would be slower than previously thought, and upped its forecast for demand.

The revisions undercut expectations of oversupply and stock builds during the seasonally weak second quarter.

"A material cut in January Opec production and disappointing growth from non-Opec producers have thrown cold water on many of the market's concerns about near-term oversupply," Merrill Lynch said in a report.

Disappointing supply growth, particularly from No. 2 producer Russia, has been compounded by the pace of incremental consumption, which last year grew at the fastest rate in a generation to fuel a 34 per cent price rally.

Opec EYEING CUT

Opec oil producers may need to cut supply for the second quarter even if consumption stays robust.

"If robust demand holds then maybe we need a small cut in second quarter. If there is a significant fall in demand then maybe we need a larger cut, and earlier," Opec's acting Secretary-General Adnan Shihab-Eldin told Reuters in an interview.

At Opec's January 30 meeting ministers said they could consult by telephone on potential production cuts before a March 16 meeting in Isfahan, Iran if they saw signs that stocks were building to levels that would pressure prices.

"There may have been stronger demand in the fourth quarter than we expected. We expected some stockbuild in OECD countries, it seems that has not materialised," Opec's Shihab-Eldin said.

"It gives us reason to believe that we have some time before we need to initiate consultations," he said.

Even so, mild temperatures in the United States over the past few weeks meant that Opec would keep a careful watch on whether it needed to act, Shihab-Eldin said. The impact of a cut in Isfahan would not be felt in the United States until June, he added.

Private weather forecaster EarthSat said on Thursday the US winter would be colder from now through March, in contrast to the National Weather Service, which last month called for a warmer-than-normal late winter.

Temperatures next week in the Northeast, which consumes the bulk of oil demand in the world's biggest energy user, should be near to below normal, forecasters Meteorlogix said.

While winter fuel stockpiles in the United States are still running below year-ago levels, crude and petrol inventories are in surplus to 12 months ago, tempering any concerns about a supply squeeze as traders switch their attention to summer consumption fuels.

- REUTERS