Oil: Prices hold firm above US$41; colder weather supports

Oil prices held firm above US$41 a barrel on Tuesday as colder weather in the US brought temperatures more into line with seasonal norms, spurring heating oil buying.

US light crude , which has fallen about 26 per cent from all-time highs touched in October, rose 26 cents to US$41.27 a barrel. London Brent rose 53 cents to US$38.37 .

Heating oil offered support, gaining 1.8 per cent to US$1.2790 a gallon, and bolstering US cracking margins.

"The energy complex looks to open higher, partly from weather-related buying activity in the heating fuels," wrote Michael Rothman at Merrill Lynch.

"Both natural gas and heating oil are expected to open disproportionately strong vis-a-vis crude and unleaded, as NYMEX traders commute to work cuddled for warmth in what are the coldest temperatures since the start of the traditional heating season," he said.

High Opec production combined with a spell of unseasonably mild weather has helped oil inventories build, sustaining the sharp market correction of the past two months.

Despite Opec's decision on Friday to rein in one million barrels a day of excess output, some traders remained unconvinced the cuts actually implemented would be sufficient to restore market balance.

Saudi Arabia, earmarked to cut 500,000 bpd, reduced January allocations to some customers significantly, trading sources said.

But Kuwait has told key term crude oil lifters in Asia it will supply full contract volumes in January despite the Opec decision, traders said on Tuesday.

Nonetheless, analysts have predicted the cartel will not let prices slide much further.

"The global economy has weathered prices in the US$40s and US$50s without severe strain, and a level of US$35 may be the new minimum," said PFC energy, referring to the level at which Opec may set its price floor.

Forecaster Meteorlogix said temperatures were set to drop below normal in the eastern US this week, before warmer weather would return heading into the weekend.

Mild temperatures have helped stave off demand for heating fuels and allowed commercial stocks to build.

A preliminary Reuters survey of eight analysts ahead of Wednesday's release of weekly US inventory data forecast an average build of 1.1 million barrels of distillates, including heating oil and diesel fuel, for the week to Dec. 10.

This would be the fourth-straight week of increase.

Heating oil inventories are still more than 13 per cent below year ago levels.

In Iraq, southern oil exports resumed from the main Basra terminal following a shutdown caused by power cuts, an international shipping agent said.

Agents said loadings were running between 1.3 and 1.9 million barrels per day.

Iraq had been exporting around 1.8 million barrels per day from Basra before the disruption.

In the north of the country, shippers said the export pipeline to Ceyhan was still closed following sabotage at the weekend.

- REUTERS