Oil Trades Near 14-Month High on Supply Drop, Cold Weather

By Christian Schmollinger and Ben Sharples

Jan. 6 (Bloomberg) -- Oil traded near a 14-month high in New York as an industry report showed a decline in U.S. crude stockpiles and cold weather bolstered the outlook for fuel demand in the world’s largest energy-consuming nation.

Temperatures in the U.S. Northeast, which consumes about four-fifths of the country’s heating oil, are forecast to remain below normal through Jan. 15, according to the National Weather Service. U.S. crude supplies dropped 2.27 million barrels last week, the American Petroleum Institute said yesterday.

“The weather is cold everywhere in the Northern Hemisphere with Europe getting walloped and China as well,” said Anthony Nunan, an assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “Anything that’s positive for heating oil and middle distillate demand has to be a positive for crude oil. The inventories have basically come off their peaks in the last few weeks.”

Crude oil for February delivery was at $81.59 a barrel, down 18 cents, in electronic trading on the New York Mercantile Exchange at 3:40 p.m. Singapore time. Yesterday, the contract rose 26 cents to $81.77, the highest settlement since Oct. 9, 2008. Oil climbed nine days through yesterday, the longest winning stretch since July.

Temperatures in northern China may drop as low as minus 32 degrees Celsius (minus 26 degrees Fahrenheit) from this evening to tomorrow night, the China Meteorological Administration said.

Temperatures in southern China may drop by as much as 6 degrees to 8 degrees Celsius as a cold front moves across the country, the China Meteorological Administration said today. Beijing, the capital of the world’s second-largest oil user, recorded a temperature of negative 20 degrees Celsius (minus 4 degrees Fahrenheit) last night, the agency said.

The eastern half of the U.S. is facing its coldest winter since 1982, AccuWeather.com said on its Web site. Arctic air from Canada is spreading south. By Jan. 9, New York and Boston may have lows of minus 10 degrees Celsius (14 degrees Fahrenheit).

Distillate Supplies

An Energy Department report today may show stockpiles of crude oil declined 1 million barrels from 326 million, based on the median estimate of 15 analysts surveyed by Bloomberg News.

Supplies of distillate fuel, a category that includes heating oil and diesel, increased 962,000 barrels to 162.6 million last week, according to the API report. The Energy Department is forecast to show stockpiles dropped 1.85 million barrels, based on the Bloomberg survey.

Inventory Data

“The API data has probably given oil a bit of upward momentum, we have seen a further draw down in crude supplies,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “There is a lot of good sentiment, especially around the prospects for heating oil in the U.S., Europe and Asia over the cooler period. If we do see a big drawdown in distillates overnight with the EIA data, we could see further rises in the oil price.”

Oil-supply totals from the API and Energy Department moved in the same direction 76 percent of the time in the past four years, according to data compiled by Bloomberg.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires reports to be filed with the Energy Department for its weekly survey.

Brent crude oil for February settlement traded at $80.42 a barrel, down 17 cents, on the London-based ICE Futures Europe exchange at 3:40 p.m. in Singapore. Yesterday, the contract rose 47 cents, or 0.6 percent, to end the session at $80.59.

Heating demand in the U.S. Northeast may be 11 percent above normal through Jan. 12, according to forecaster Weather Derivatives.

Heating oil for February delivery in New York fell as much as 1.36 cents, or 0.6 percent, to $2.1805 a gallon. It was at $2.1848 a gallon at 3:39 p.m. Singapore time. The contract rose 0.36 cent to settle at $2.1941 a gallon yesterday.

The southeastern U.S., which is much more dependent on natural gas for warmth, will see heating demand jump by 49 percent above normal through Jan. 12, Weather Derivatives said.

Natural gas for February delivery rose as much as 1.4 percent to $5.717 per million British thermal units.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net