Oil: Prices steady, warming weather counters supply fear

NEW YORK - Oil prices steadied on Tuesday, holding Monday's losses as forecasts for a swift end to this week's US cold snap eased worries over thin fuel stocks in the world's biggest energy consumer.

US light crude settled down two cents at US$45.76 a barrel, after a 64-cent decline on Monday. In London, benchmark Brent futures fell eight cents to US$42.37.

Last week oil prices rose by nearly US$5.50, clawing back about a third of their losses over the preceding two months as low temperatures in the Northeast heating oil market bolstered energy demand.

Forecasters expect milder conditions over the coming days, though most forecasts predict a colder-than-normal first quarter next year. That could strain winter fuel stocks already 13 per cent lower than in 2003.

"Heating oil stocks are still where the problem is," said analyst Paul Bednarczyk of 4CAST.

Last week's cold is expected to have helped draw down overall distillate supplies, which include diesel and heating oil, by 1.0 million barrels, a Reuters poll showed.

Crude oil stocks were seen easing by 400,000 barrels, the second decline in a row, the poll found. A government report on last week's oil supply levels are to be released Wednesday.

MIDDLE EAST, RUSSIA WORRIES NAG

Renewed anxiety about output from the world's two biggest oil producers kept the market supported, as militants urged attacks on Saudi oil facilities and Russia sold off top exporter YUKOS's main producing arm.

Statements last week from Osama bin Laden and the Saudi wing of al Qaeda, calling on guerrillas to disrupt output from Iraq and Saudi Arabia, served as a reminder of instability as the kingdom battles a 19-month wave of violence.

Gunmen have killed foreigners in the Red Sea petrochemical hub of Yanbu and the oil city of al-Khobar this year, but there have been no reports of direct attacks on oil facilities.

On Monday, the chief executive of YUKOS said production was beginning to decline because of a cash flow crunch. Oil traders said the firm had defaulted on two December export cargoes because of its failure to pay duties.

The months-long turmoil over YUKOS came to a head after its main oil unit Yuganskneftegaz, which pumps more than Opec-member Qatar, was auctioned off on Sunday to mystery firm Baikal for US$9.4 billion to pay back taxes.

Oil traders said they were on tenterhooks over short-term exports, although most expected supplies to continue flowing, even if they were marketed by a different party.

Ongoing outages in the United States, Nigeria, Canada and Norway are taking about 500,000 bpd of possible output off the market, leaving little spare output capacity in the event of any major supply disruption.

A leap in China's oil imports illustrated that global oil demand growth remains strong, although it is expected to slow in 2005 after surging this year.

Crude imports by the world's second-biggest consumer were up 45.6 per cent in November versus a year ago, recovering from an October slump and putting year-to-date imports up 35 per cent from the same period in 2003, official figures showed.

- REUTERS