Oil: Prices surge steadies as Opec seeks to reassure

NEW YORK - High-flying oil prices gave back a small portion of rapid recent gains on Wednesday as producer-group Opec sought to assure traders it would not let prices rise too high.

Even so, prices held near US$51 a barrel, after rallying almost 6 per cent on Tuesday, spurred by frigid weather in the US Northeast and sharp declines in the US dollar.

US crude oil prices settled down 25 cents to US$50.17 a barrel after gaining US$2.80 on Tuesday, the fastest rise in one session since October 2000. London Brent crude slipped 11 cents to US$48.51 a barrel.

US heating oil futures stayed on the boil, limiting crude's losses, as forecasters predicted more cold and snow for the Northeast next week. Heating oil settled up 4.29 cents at US$1.4831 a gallon after hitting a 13-week high at US$1.4875.

Crude eased after Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah, also Opec's president, said the group would act to cool oil prices if they kept rising.

"If the prices rise further there will be a reaction from Opec to help lower these prices," said al-Sabah.

The cartel next meets on March 16 in Iran.

Oil prices have risen more than US$5 in the last two weeks and are within striking distance of the record US$55.67 a barrel hit last October.

Traders said there was some risk of profit taking from the huge move on Wednesday, but that generally prices looked well supported in a new, firmer range.

"Oil has surged into a new paradigm above US$50 (for NYMEX crude) where it spent much of last October. Given the newfound interest within the managed fund community, we look for a US$50-US$55 range now," wrote brokerage Refco in a report.

STRONG DEMAND

Demand for heating fuel in the US Northeast, the world's biggest heating oil market, was forecast to be 5.9 per cent above normal in the week to Feb. 26, the US National Weather Service said.

Private forecasters said on Wednesday that cold weather will remain in force on the East Coast next week with the possibility of a big winter storm.

A falling US dollar, which suffered its biggest daily decline in two months against major currencies on Tuesday, also sparked fund buying and drove oil prices higher.

The dollar recouped some losses against the euro and the yen on Wednesday after Seoul said plans to diversify its foreign exchange reserves did not mean it would sell the US currency.

Opec has been keeping a close watch on global stockpiles to ensure that an overly large build does not send prices sliding when demand eases after the northern winter.

Lower supply forecasts from non-Opec producers -- especially Russia -- have signaled a heightened need for Opec's oil, particularly with demand running stronger than expected.

US crude oil supplies are expected to rise 500,000 barrels for the week to Feb. 18 this week, a preliminary Reuters survey of eight analysts found, which would be a rise for the second straight week.

But the analysts also expected a 1.7 million-barrel drop in distillate stocks.

- REUTERS