Crude Inches Up, All Eyes on Weather

With crude futures at their highest since the end of November and the New York Mercantile Exchange (search) closed, oil prices looked for direction Monday on alternate markets.

Analysts said cold weather in the Northern Hemisphere and the linked draw on heating oil would underpin prices in the coming weeks, but suggested the approach of lessened demand come the Western Hemisphere spring could work to lower levels.

Brent crude closed up 7 cents to $45.03 a barrel on the International Petroleum Exchange (search).

On Friday, ahead of the Martin Luther King Day (search) holiday in the United States, light sweet crude for February delivery rose 34 cents to $48.38 a barrel on the Nymex. Heating oil gained more than 4 cents to $1.3509 a gallon.

"The market is very well-supported," said Esa Ramasamy, oil editorial manager at the energy reporting agency Platts. "If there's no increase in supplies, the prices would hold up."

Outages in the North Sea and Nigeria, along with continuing production shutdowns in the Gulf of Mexico, have kept nearly 1 million barrels a day off the market.

There was some good news for consumers Monday.

Shell officials said a Nigerian subsidiary restarted oil production at five platforms shut down last month by protests in the troubled Niger Delta, even though a pipeline leak cut output elsewhere

And three offshore oil fields shut down after they were damaged in accidents were restarted over the weekend, including full production from the 140,000 barrel per day Draugen field in the Norwegian Sea.

But continuing sabotage attacks on Iraq's northern pipeline infrastructure and power problems in the south continue to reduce exports. Worries that violence could escalate before elections, set for Jan. 30, have added a premium.

The disruptions coincide with OPEC's implementation of an output cut of 1 million barrels per day from the beginning of the year.

OPEC ministers are scheduled to meet Jan. 30 to discuss whether further cuts may be necessary. Oil demand falls in the second quarter of the year with the end of the northern winter.

Analysts said the meeting would have to reconcile the present cold weather and relative scarcity of distillates with the traditional drop in demand come springtime, along with predictions of lessened world economic growth.

"It's looking reasonably firm for prices" for now, said John Waterlow of Wood Mackenzie Consultants in Edinburgh. "But they've got to worry about that demand is undoubtedly weaker in 2005 than in 2004 — it's a bit of a balancing act."

Ramasamy predicted a "bull run" if OPEC decides on further supply cutbacks, In the short term, David O'Neill of Citigroup's Smith-Barney brokerage division suggested prices would remain at present levels due to speculative buying driven by the weather and Iraq uncertainties.