Friday, November 10, 2006

Crude oil may rise next week because surging U.S. fuel consumption is reducing stockpiles as the Northern Hemisphere winter approaches.

Twenty-one of 43 analysts, traders and brokers, or 49 percent, said prices will increase, according to a Bloomberg News survey. Five expect a decline and 17 forecast little change.

World oil demand peaks in the fourth quarter as refineries increase production of heating fuel. Implied demand for distillate fuel, or diesel and heating oil, averaged 4.4 million barrels a day over the four weeks to Nov. 3, up 8.9 percent from a year earlier, the Energy Department said this week.

``We've seen incredible demand for products, which has caused inventories to fall at a dramatic rate,'' said Phil Flynn, vice president of risk management with Alaron Trading Corp. in Chicago. ``We've been complacent about inventories for a while now but that may be changing as the surplus padding disappears. At the same time we are seeing OPEC cut output.''

Crude oil for December delivery rose $2.02, or 3.4 percent, to $61.16 a barrel on the New York Mercantile Exchange in the first four days of trading this week. Some 41 percent of analysts, traders and brokers surveyed last week expected prices to be little changed. Futures are up 3.8 percent from a year ago.

Gasoline use averaged 9.4 million barrels a day in the past four weeks, up 3.9 percent from a year earlier, according to a Nov. 8 report from the Energy Department, which tracks shipments from refineries, pipelines and terminals to calculate demand.

Distillate inventories fell 2.68 million barrels to 138.6 million last week, the report showed, with stockpiles having dropped 8.5 percent in the five weeks through Nov. 3. Within the distillate category, diesel dropped 2.92 million barrels and heating oil rose 248,000 barrels. Gasoline supplies slipped 584,000 barrels to 204 million last week.

OPEC Production

Members of the Organization of Petroleum Exporting Countries agreed on Oct. 20 to reduce oil output by 1.2 million barrels a day to stem a three-month slide in prices. The reductions started Nov. 1.

The group, which pumps about 40 percent of the world's oil, may cut production again when it meets on Dec. 14, Saudi Arabia's oil minister, Ali al-Naimi, said on Nov. 6.

``We're still digesting the Saudi statement that the market is over-supplied and another cut may be necessary,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``The Saudis are moderates and usually don't push for cuts.''

Untimely Cut

OPEC's reduction is untimely because demand for heating fuel will soon rise, Claude Mandil, executive director of the International Energy Agency, said yesterday. The Paris-based group was set up in 1974 to advise industrialized nations on energy policy.

Analysts looking for little-changed or falling prices said that the decline in stockpiles was insufficient to push futures out of their trading range. Diesel, heating oil and gasoline supplies last week were above the five-year average for the period, the department said. Futures have traded between $56.55 and $61.79 for the past month.

``Crude oil continues to fluctuate within a relatively narrow trading range,'' said Gerard Burg, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. ``In the absence of a major disruption to supply, prices will remain range-constrained until demand builds toward the winter.''

Warm weather in the Northeast has reduced demand for heating fuel in the region, responsible for 80 percent of U.S. heating-oil consumption. Home-heating use there will be 23 percent below normal through Nov. 16, said Weather Derivatives, a forecaster in Belton, Missouri.