Oil Rises to a 15-Month High on Cold Weather, Weaker Dollar

By Grant Smith and Yee Kai Pin

Jan. 11 (Bloomberg) -- Crude oil rose to a 15-month high as the cold snap stoked demand for heating fuel while a sliding dollar heightened crude’s appeal for hedging inflation.

Oil advanced a second day after a government report yesterday showed that crude imports to China, second-largest energy consumer, climbed to a record 203.8 million metric tons last year. Russia failed to agree on oil supplies to Belarus for 2010 during talks in Moscow on Jan. 9, raising the prospect of a disruption to European imports.

“Oil continues to trend higher this morning as cold weather and a weaker dollar trigger speculative buying,” said Christopher Bellew, senior broker at Bache Commodities Ltd in London. “But once the weather in the U.S. improves, plentiful supplies of physical oil may soon weigh on prices.”

Crude oil for February delivery rose as much as 92 cents, or 1.1 percent, to $83.67 a barrel in electronic trading on the New York Mercantile Exchange. That’s the highest since Oct. 14, 2008. It was at $83.43 a barrel at 9:50 a.m. London time.

Futures have risen in 11 of the past 12 sessions as freezing temperatures in the U.S., Europe and Asia boosted heating fuel demand. More cold weather is forecast for China in the next two days.

The cold snap “has done its part in eating away at the distillates stockpiles, but really it’s the industrial demand that the market is going to be focusing on,” said Toby Hassall, commodity analyst at CWA Global Markets Pty in Sydney.

Fuel Inventories

U.S. stockpiles of distillates like heating oil fell for a fourth week even as imports and refinery output increased, an Energy Department report on Jan. 6 showed. Inventories including heating oil and diesel were at 159 million barrels in the week ended Jan. 1, the lowest since July.

Negotiations between Russia and Belarus broke down because of disputes over customs duties and the re-export of refined oil products from Belarus, Russian Energy Ministry spokeswoman Irina Yesipova said by telephone. The countries had planned to sign an agreement on supplies before Jan. 1.

U.S. retail sales expanded 0.5 percent in December, based on the median forecast from 57 economists surveyed by Bloomberg News before a Jan. 14 Commerce Department report. Industrial production probably rose 0.6 percent, another report may show.

Exports in China, the world’s fastest-growing major economy, climbed 17.7 percent in December from a year earlier, the first increase in 14 months, the customs bureau said on its Web site yesterday. Imports jumped 55.9 percent.

“Asia has obviously performed well throughout this recession,” Hassall said. “Beyond the short term, the global economy, and the U.S. in particular, the largest consumer of oil, is in the early stages of a recovery, which suggests that demand is on the mend.”

Investment Appeal

The dollar dropped to a three-week low against the euro on signs Asia’s economic growth is gaining pace, bolstering the investment appeal of commodities. The U.S. currency slid as much as 1 percent to $1.4535 per euro, the weakest since Dec. 17, from $1.4409 in New York on Jan. 8.

Chevron Corp., the second-largest U.S. energy producer, said the Makaraba-Utonana pipeline it operates in southern Nigeria’s Delta state was breached on Jan. 8, shutting in 20,000 barrels a day of crude oil production.

Nigeria, which vies with Angola for Africa’s top oil producer, is the fifth-biggest source of U.S. crude imports. Attacks by armed groups in Nigeria’s oil-rich delta region have cut the country’s output by more than 25 percent since 2006.

Brent crude oil for February settlement rose as much as 88 cents, or 1.1 percent, to $82.25 a barrel on the London-based ICE Futures Europe exchange. It was at $82.04 a barrel at 9:52 a.m. London time.

To contact the reporters on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net