Crude oil futures fell in London on Friday, ending the week 7.5 percent lower after a recent report showed an unexpected gain in US inventories of distillate fuels such as heating oil.
Prices have traded in an US$8-a-barrel range this month, rising and falling mainly on changes in US heating-oil inventories and shifting perceptions about weather in the US Northeast, the biggest residential market for the winter fuel.
"Everyone's worried about heating oil at this time of year and weather reports can easily have an effect on prices," said William Buchanan, a senior energy trader at Standard Bank in London. "A cold blast and a drop in heating-oil inventories would be enough to get this market up again."
Brent crude for February settlement fell US$0.58 to US$40.13 a barrel on London's International Petroleum Exchange (IPE) in a holiday-shortened session that ended at 1pm. It fell US$1.73 on Wednesday and rebounded by US$0.07 on Thursday.
On Friday a few transactions were enough to move prices US$0.20 or so up or down because there was little trading, Buchanan said. The IPE will be closed on Monday and Tuesday for Christmas holidays. The New York Mercantile Exchange was closed on Friday for the Christmas holiday. February crude in New York closed US$0.06 down on Friday at US$44.18.
Prices tumbled on Wednesday when the US Energy Department's weekly report showed distillate-fuel inventories rose 584,000 barrels to 119.9 million barrels in the week ended Dec. 17. Analysts polled by Bloomberg had on average expected a drop of about 1.1 million barrels. Crude oil inventories rose 2.1 million barrels, versus an expected decline of 800,000.
Hedge funds and other large speculators have cut their exposure to crude futures in recent weeks and early this month adopted a net-short position, meaning they're betting more heavily on prices falling than rising.
As of Dec. 14, large speculators had 77,382 short positions, betting on a price drop, against 68,310 long positions, betting on a rise, a weekly report from the US futures regulator showed. The next report, a snapshot of positions on Dec. 21, which would normally be released today, will be delayed until Dec. 27 because of the holidays.
Speculators were most optimistic in March, seven months before prices reached this year's peak. On March 2, they had amassed 79,992 short positions -- about the same as now -- against 162,443 long positions, which was a record at the time.