Oil: Prices surge over US$51 on winter chill

LONDON - Oil prices surged nearly 6 per cent to a 16-week high above $51 a barrel on Tuesday as a late bout of cold winter weather kept heating fuel demand up in the United States and Europe.

Statements from Opec members Kuwait and Libya that the price strength meant there was no need for the cartel to reduce output did little to curb the rally.

US crude oil jumped by $2.80 a barrel, or 5.8 per cent to $51.15, the highest settlement since Oct. 29. Brent crude traded in London settled up $1.89 to $48.62.

Oil prices have risen more than $5 in the last two weeks to within reach of the record $55.67 a barrel hit last autumn as strong demand growth and disappointing supply forecasts from producers outside Opec -- especially Russia -- have signalled a heightened need for Opec's oil.

Speculative funds had bid up prices for the whole energy complex including petrol which will see strengthening demand heading into the US summer, traders said.

"We had expected the funds to start selling as soon as the price reaches $50, but in fact they started to buy instead, having decided that it was a good chance to pick up a bit more," said Deborah White, chief energy strategist at SG Securities.

Cold weather on both sides of the Atlantic has helped stoke late-winter demand for heating oil, giving a fresh boost to prices since US inventories of the fuel are still quite low.

Europe is much colder than normal this week while temperatures in the US Northeast, the world's biggest heating oil market, are expected to hold below normal at least until next weekend.

DOLLAR DECLINE

Support also came from a further sharp decline in the dollar, which suffered its biggest intraday fall against the euro since August as markets worried that central banks were diversifying reserves out of US assets.

"If the dollar continues to weaken oil will be obviously higher," said Chris Furness, senior market strategist at 4Cast.

The rally continued even after Opec members Kuwait and Libya came in to play down a possibility of a cut in the cartel's output in the near future.

"At the meeting there should be consultations, but ... if the situation remains as it is now there is no need to cut production," Kuwait's oil minister Sheikh Ahmad al-Fahd al-Sabah, who is also president of Opec, told reporters.

" "I agree that we don't need to cut (supply) if the prices are as much as this... I don't think we need to cut unless the prices are falling below $35 per barrel, then there is a need for a cut," Libya's oil minister Fathi Bin Shatwan told Reuters.

The Organisation of the Petroleum Exporting Countries is keeping a close watch on global stockpiles to ensure that an overly large build does not send prices spiralling lower when demand eases after the northern winter.

Saudi Oil Minister Ali al-Naimi also said on Monday that he did not expect inventories to rise above 52 days of demand cover in the second quarter, when consumption eases.

- REUTERS