LONDON – Oil prices rose sharply on Friday as worries a cold spell in the United States could erode already depleted winter fuel inventories spurred the market higher.
U.S. light crude rose 82 cents to $45.00 a barrel on the New York Mercantile Exchange (search), the highest level since early December. London Brent was 87 cents higher at $42.30 a barrel.
Prices have rallied by more than 10 percent this week, rebounding from a five-month low of $40.25 a barrel on Monday. They had shed more than $15 in seven weeks.
Big money speculative funds which had sold the market short for the first time in over a year leapt back in to cover positions this week, inspired in part by OPEC's (search) move to take one million barrels per day (bpd) of excess supply off the market.
U.S. government data showing still low heating fuel inventories and the first decline in crude stocks for three months also drove gains on Wednesday, helping London's Brent crude to its biggest one-day surge since 1991.
Despite mild winter conditions until recently, heating oil inventories in the world's top consumer have remained stubbornly thin versus last year, fanning fears that weather-induced demand could strain supplies.
Temperatures are expected to fall below the seasonal norm next week in the second cold spell of the winter, bolstering demand for heating fuel, forecasters said.
"If the cold weather persists, then people will buy," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo. "We're at the top season of heating oil demand and inventory levels are below previous years."
Temperatures in the U.S. Northeast will dip by as much as 6-12 Fahrenheit below normal by Monday, private forecaster Meteorlogix said, while others saw it as much as 20 F below normal.
Heating oil futures have rallied even faster than crude, jumping by almost 13 percent this week.
Strong consumption of diesel has further strained supplies available for heating. Distillate demand over the last four weeks has averaged nearly seven percent above the same period last year, the Energy Information Administration (search) (EIA) said.
Although OPEC said its planned output cuts from Jan. 1 were unlikely to affect stocks until after the winter because of the lag time in long-distance shipping, crude production has already been constrained elsewhere across the globe.
Ongoing outages in the United States, Nigeria, Canada and Norway are taking about 500,000 bpd of possible output off the market.
The storm surrounding embattled Russian oil producer YUKOS (search) has also kept traders on edge, fearful the months-long saga could eventually tell on the company's 1.8 million bpd output.
A U.S. bankruptcy court issued a temporary order on Thursday to block for 10 days the impending auction of the company's main oil-producing arm to pay $27.5 billion in back taxes.
Earlier, a government body said it would carry out the sale regardless of the U.S. bankruptcy court's moves.