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US cold spell helps heat up oil markets in NYC and London

Oil prices jumped 5 percent on Friday, reversing Thursday's fund-led sell-off, as subzero temperatures in the US Northeast threatened to strain already low US fuel stocks.

US light crude for delivery next month on the New York Mercantile Exchange settled up US$1.63 or 4.9 percent at US$35.07 a barrel after peaking at US$35.30. The contract fell US$1.06 on Thursday.

There was frantic activity in the refined products markets, with US heating oil and gasoline prices also recouping Thursday's sharp losses and leaping 5.4 percent and 6.7 percent, respectively, in a shortened trading session that ended at 1 pm.

In London, the new March Brent crude contract likewise ended higher, adding US$1.13 or 3.8 percent to US$30.47 a barrel. February Brent went off the board on Thursday at US$31.56.

Prices found renewed strength on worries that bitter cold in the US Northeast will deplete US inventories which are already at record low levels, though the freeze is expected to ease early this week.

Gasoline traders, meanwhile, said concerns over possible tightness when refineries undertake a heavy winter maintenance turnaround schedule spurred the motor fuel's rebound.

New gasoline specifications and a lack of surplus refining capacity are prompting US refiners to undertake one of the most comprehensive overhauls ever, a Reuters survey showed.

Trading volumes picked up ahead of a three-day weekend in the US.

"As usual on long weekends, traders don't want to go home home short, with the latest forecast saying we're not getting out of this cold anytime soon," said Marshall Steeves, energy market analyst at Refco Group.

Signs that the US economic recovery was continuing in high gear also fueled the upswing. Analysts predicted the US economy grew 5 percent to 6 percent in the fourth quarter, on top of an 8.2 percent rise in the third quarter.

Rapid economic growth in China also pumped up fuel demand, while sabotage at Iraqi oil facilities has delayed its post-war production recovery.

The International Energy Agency on Friday said inventories would rebuild sharply in the second quarter when demand eases after the northern hemisphere's winter. In its monthly Oil Market Report, the IEA said OPEC crude production rose further above quota limits last month to stand 4.6 million barrels per day above projected demand for the cartel's crude in the second quarter.

The IEA data may strengthen the case for the oil cartel to cut production at its Feb. 10 meeting.
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