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Oil May Rise as Cold Snap Raises Winter Fuel Use, Survey Shows

Oil May Rise as Cold Snap Raises Winter Fuel Use, Survey Shows

Dec. 2 (Bloomberg) -- Crude oil may rise as inventories decline and cold weather in the U.S. Northeast raises demand for heating fuel, a Bloomberg survey showed.

Twenty-three of 54 analysts surveyed, or 43 percent, said prices will increase next week. Fourteen, or 26 percent, said oil will fall and 17, or 31 percent, expect little change.

Temperatures in the Northeast are forecast to fall below normal next week after a warm November. U.S. crude oil and gasoline supplies declined last week, the Energy Department reported on Nov. 30. The report showed that refiners are reducing gasoline output as they bolster heating oil stockpiles.

``The weather will be the key next week,'' said Jason Schenker, an economist at Wachovia Corp. in Charlotte, North Carolina. Traders will be watching next week's Energy Department report to gauge the increase in heating fuel demand. ``If inventories decline like they did, it will be quite bullish for prices,'' he said.

Crude oil fell 24 cents, or 0.4 percent, during the first four days of this week to $58.47 a barrel at yesterday's close on the New York Mercantile Exchange. Prices have risen 35 percent this year.

Oil is down 17 percent from a record $70.85 a barrel reached on Aug. 30, the day after Hurricane Katrina damaged oil platforms and refineries along the U.S. Gulf of Mexico coast.

Heating Demand

Home-heating demand in the Northeast, where 80 percent of the nation's heating oil is used, will be 14 percent above normal through Dec. 8, Weather Derivatives, a forecaster in Belton, Missouri, said yesterday.

``November was certainly not a cold month,'' said Michael Palmerino, a forecaster at Lexington, Massachusetts-based Meteorlogix. ``Temperatures are still on the mild side but indications are that they will be below normal over the next week to 10 days.''

The average temperature in Boston last month was 1 degree Fahrenheit above normal, Palmerino said. In New York the average temperature in November was 2.5 degrees higher than normal, he said. Next week both cities will be colder than normal with thermometers plunging as much as 8 degrees below normal on Dec. 7, according to Palmerino.

``Cold weather in the northeastern states may finally provide some much-needed direction for the oil market,'' said Gerard Burg, a minerals and energy economist at National Australia Bank in Sydney. ``A draw in both crude oil and distillates would pressure traders to push oil higher.''

U.S. Inventories

Gasoline supplies dropped 545,000 barrels to 199.9 million in the week ended Nov. 25, according to the Energy Department's report. Stockpiles were 2.3 percent below the five-year average for the date, the department said. Crude oil inventories fell 4.2 million barrels to 317.6 million, the report showed.

Gasoline consumption rose last week as pump prices fell. Gasoline supplied, a proxy for demand, has averaged 9.2 million barrels a day in the past four weeks, up 1.3 percent from the same period last year.

``Given the robust economic growth in the U.S. the gasoline number seems a latent bullish figure even in the off season,'' said Makoto Takeda, an energy analyst at Iriya Bansei Securities Co. in Tokyo.

U.S. gasoline demand peaks during the driving season, which runs from late May to early September. During this period crude oil and heating oil futures usually take their cue from gasoline. Global fuel consumption peaks during the Northern Hemisphere winter, when furnaces are stoked. Heating oil futures are usually the focus during this period.

Economic Growth

The U.S. economy grew at a 4.3 percent annual rate from July through September, the quickest since the first quarter of last year, even as energy prices surged to records. The revised figure for gross domestic product, the value of all goods and services produced in the U.S., compares with a 3.8 percent pace initially estimated, the Commerce Department reported Nov. 30.

U.S. manufacturers are hiring workers and rebuilding inventories as fuel costs drop, bolstering the economy. The Institute for Supply Management said yesterday its factory index was 58.1 in November, a level the group said is consistent with U.S. economic growth in excess of 5 percent.

Rising prices ``coupled with extremely strong economic readings this week reinvigorated concerns that demand, overall, will increase and pressure the ability of producers to meet this demand,'' said John Kilduff, vice-president of risk management at Fimat USA in New York.

Crude-oil prices have almost tripled in four years on speculation surging consumption would outpace supply. The U.S. consumes 25 percent of the world's oil. The U.S. economy, the world's biggest, will grow 3.5 percent next year and 3.3 percent in 2007 after 3.6 percent this year, the Organization for Economic Cooperation and Development said Nov. 29.

The economy in China, the second-biggest oil consumer, is expected to expand 9.4 percent in 2006 after growing 9.3 percent this year, the organization said. China consumed 8.3 percent of the world's oil last year, according to a report by BP Plc.

Bloomberg's survey of oil analysts and traders, conducted
each Thursday, asks for an assessment of whether crude oil
futures are likely to rise, fall or remain neutral in the coming
week. The results were:

                    RISE       FALL      NEUTRAL 
                      23         14         17

To contact the reporter on this story:
Mark Shenk in New York at [e-mail].


LINK: http://www.bloomberg.com/apps/news?pid=10000087&sid=anIsAbs6tmNs&refer=top_world_news