Oil hovers near 2-year high on cold snap, tighter stocks

By @ibtimes on

Oil prices climbed toward a two-year high on Thursday as cold weather in the United States boosted demand, slashed stockpiles and contributed to a stronger-than-expected rise in fuel consumption in 2010.

U.S. crude for February rose 25 cents to $90.73 a barrel by 0714 GMT (2:14 a.m. ET), after settling at the highest level since October 2008 on Wednesday. ICE Brent crude traded 14 cents higher at $93.79.

Abnormally cold weather in the United States and Europe have spurred the rally above $90, the latest leg in a more than 40 percent rise from a year low in May.

Oil has risen as ... inventories have fallen more than expected due to the cold weather in the northern hemisphere, said Serene Lim, an oil analyst at ANZ.

For a graphic on crude oil price surge:

http://link.reuters.com/jaw43r

Stockpiles in the world's biggest oil user have fallen by 19 million barrels since November 26, roughly equivalent to one day of U.S. fuel consumption and the biggest three-week drop since 1998.

Forecaster AccuWeather.com expects temperatures in the U.S. Northeast, the world's largest heating oil market, to average mostly below normal for the next week, with slightly milder readings later this month.

U.S. heating oil demand was expected to average 4.6 percent above normal this week.

In Europe, fresh snow forecasts threatened to prolong chaos caused by a cold snap, with airlines and rail networks struggling to restore normal services.

DEMAND REBOUND

Despite oil's steady climb, prices likely have further wiggle room before they begin to impact economic growth in oil-consuming countries, analysts said.

Oil prices anywhere above $110 will start to eat into economic growth, Lim said.

A Reuters poll showed that oil demand this year has recovered from the global economic slowdown far faster than anyone had predicted earlier in 2010. While growth was expected to slow in 2011, demand would still reach a new all-time high of 88.6 million bpd.

The increase in fuel consumption was centered on the developing world, with one third of the 1.5 million barrel-per-day (bpd) global demand growth in 2011 coming from China, according to the survey of 12 top oil-tracking analysts.

China's apparent oil demand rose 13.9 percent from a year earlier to a record-high of 9.34 million bpd in November, Reuters calculations from official data showed.

(Additional reporting by Seng Li Peng; Editing by Himani Sarkar)

Join the Discussion