Oil nudged higher on Monday, extending last week's gains while traders awaited further signs of OPEC's compliance with output curbs and kept a close eye on Saudi oil facilities amid heightened security activity.
U.S. light, sweet crude for December delivery
The December contract rose 2.4 percent last week as some OPEC members began to implement output cuts, U.S. crude stocks fell sharply and chilly winter weather made an early appearance, helping revive prices from a 2006 low of $56.55 on Oct. 20.
Prices rose on Friday after Britain's Royal Navy said coalition forces were helping guard oil installations in top exporter Saudi Arabia -- in particular the Ras Tanura terminal, the kingdom's primary export point -- as part of stepped-up security following an al Qaeda threat last month. [nL27886601]
Industry sources said exports continued unaffected but the news revived fears of a possible disruptive attack by al Qaeda, which has repeatedly urged targetting Gulf oil infrastructure. An attack on Saudi's Abqaiq processing plant in February was foiled.
Dealers will be watching this week for further signs that other OPEC members will follow Saudi Arabia and the UAE in telling customers how they will curb production to implement an agreed 1.2 million barrel per day (bpd) OPEC cut.
"The cut...seems to be taking hold in the mind of the market and so far, seems to be getting backed up with actual shipping reduction notices from the major OPEC members," said analyst Martin King at FirstEnergy Capital Corp.
"We believe that reduction announced by OPEC will have a material impact on global stocks of crude oil and products."
Data for October that emerged on Friday shook some traders' confidence as it showed that output actually rose fractionally to 30.18 million bpd from the month before, consultant Petrologistics said on Friday, despite pledges that month from Nigeria and Venezuela to voluntarily cut back.
Signs of an early or chilly winter in the U.S. Northeast have lent some support to prices, although a Friday forecast by Meteorlogix called for temperatures to return to seasonal norms by later this week, tempering heating fuel demand.
Most longer-term projections have called for a normal to colder than usual winter, potentially eroding heating fuel stocks that last week stood 7 percent higher than a year earlier. Crude oil stocks are well above their five-year range.
"While the inventory overhang in the U.S. still remains large, GS research notes that recent cold temperatures in the main heating oil regions of the U.S. and strong transportation demand will likely continue to reduce the surplus, forming the basis for a more sustainable rally in oil prices," Goldman Sachs said.
Speculators on the NYMEX crude oil market marginally deepened their net short positions to just over 5,000 lots in the week to Oct. 24, data showed on Friday. They more than doubled net heating oil short positions to over 8,000 lots.
