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Cold Weather and Hurricane Damage Send Crude Oil Higher

Posted on: Monday, 21 November 2005, 15:00 CST

By Will Kennedy and Gavin Evans Bloomberg News

Crude oil rose in New York on concern colder weather will increase heating use and hurricane-damaged platforms in the Gulf of Mexico won't be repaired fast enough to meet demand.

Consumption of heating fuels in Boston, Buffalo and New York City will be above normal this week, Minneapolis-based forecaster Meteorlogix LLC said Sunday. Daily Gulf output last week had its smallest gain in eight weeks and remains 47 percent below normal after disruptions caused by Hurricanes Katrina and Rita, the U.S. Minerals Management Service said.

"The cold winter is coming in the U.S. and Asia," said Naohiro Niimura, vice president for derivative products at Mizuho Corporate Bank Ltd. in Tokyo. "About 50 percent of platforms in the Gulf are still not working. It's easy to buy at the moment."

Crude oil for January rose as much as 58 cents, or 1 percent, to $57.79 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It traded at $57.70 at 10:15 a.m. in Singapore. Prices are 19 percent higher than a year ago.

The January contract rose 6 cents, or 0.1 percent, to $57.21 a barrel on Nov. 18. The December contract, which expired that day, fell 20 cents to $56.14 a barrel, the lowest close since June 15.

"It seems a bit tenuous to think prices will just continue to decline when winter is coming," said Andrew Harrington, a resources analyst at Australian & New Zealand Banking Group Ltd. in Sydney.

U.S. demand for distillate, which includes heating oil and diesel, has peaked in January in four of the past five years, according to Energy Department data.

The U.S. is the world's biggest oil user, accounting for about a quarter of global consumption. Its stockpiles of crude oil and distillate were 10 percent and 7.7 percent higher than a year earlier respectively in the week ended Nov. 11.

While U.S. fuel supplies are in the middle of the range for this time of year, there is limited spare capacity there or globally to cope with any weather shocks or supply disruptions, ANZ's Harrington said.

The amount of oil production closed in the Gulf of Mexico fell 18,472 barrels a day, or 2.5 percent, to 717,807 barrels, according to data compiled by the U.S. Minerals Management Service. That's about 53 percent of normal output.

Oil prices have declined 19 percent from the record $70.85 reached on Aug. 30, the day after Hurricane Katrina made landfall and wrecked rigs and platforms in the Gulf of Mexico.

Hedge-fund managers and other large speculators increased their net-short position in New York crude-oil futures in the week ended Nov. 15, according to U.S. Commodity Futures Trading Commission data.

Speculative short positions, or bets prices will fall, outnumbered long positions by 56,168 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-short positions rose by 8,352 contracts, or 17 percent, from a week earlier.

The Organization of Petroleum Exporting Countries, the source of almost 40 percent of the world's oil, is unlikely to reduce production in the face of rising winter demand in Europe and the U.S., the group's president said Saturday.

"The market is well supplied," Sheikh Ahmad Fahd al-Sabah, OPEC's president and Kuwait's oil minister, said in Riyadh. "Prices are now more reasonable and more acceptable by everybody."

OPEC agreed in September to effectively suspend self-imposed production quotas to help quell rising prices and swell global stockpiles before the winter.

Oil prices were expected to rise this week, based on a Bloomberg survey of 56 traders and analysts. Twenty-five, or 45 percent, said prices would rise next week. Eighteen, or 32 percent, said oil would decline and 13 expected prices to be little changed.

E-mail: wkennedy3@bloomberg.net; gavinevans@bloomberg.net

Source: Deseret News (Salt Lake City)

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