Oil Prices Hover Around $62 a Barrel

Posted 05 December 2006 @ 11:38 am EET     Print     Reprint     E-Mail     Comments

SINGAPORE (Reuters) - Oil prices rose slightly in Tuesday as traders in Asia watched U.S. winter weather and anticipated further production cuts by OPEC.

Prices in the last week broke out of the $57 to $62 a barrel band that had held them for nearly two months. On Tuesday, light sweet crude for January delivery was up 16 cents midmorning to $62.60 a barrel in Asian electronic trading on the New York Mercantile Exchange.

Energy analyst Victor Shum said the market would strengthen further as demand increased during the northern hemisphere winter. He predicted that $60 a barrel was the new price floor.

"In the short-term future, what's still going to move the market is the weather," said Shum, of Purvin & Gertz in Singapore. Prices dropped a day before on a mild weather forecast for next week but Shum noted the winter season — when demand is typically highest — has not officially begun.

"What drives oil at the end of the day is good old-fashioned demand," he said. Cold weather spurs demand for heating oil, pushing prices higher.

Prices were driven above $62 a barrel after a storm in the United States last week and comments from key members of the Organization of Petroleum Exporting Countries that suggest the cartel will push for further cuts in output when it meets Dec. 14 in Nigeria.

Recent data from the International Energy Agency showed stocks held among the 30 Organization of Economic Cooperation and Development member countries at the end of September were 2.76 billion barrels, the highest level in almost eight years and 4.5 percent higher than a year ago.

This means OECD members have 55 days' worth of oil consumption in stock, a significant two days more than a year ago.

On Saturday, OPEC's de facto leader, Saudi Arabia Oil Minister Ali Naimi, said the cartel needed to take 100 million barrels out of the market to balance it. Kuwait's Oil Minister Sheik Ali Al Jarrah Al Sabah, who was also at a meeting of Arab oil producers in Cairo, agreed.

The figure is close to what the IEA estimates is the stock build in the third quarter of this year — the highest for the period in 14 years — and it equates to more than 1 million barrels a day.

Edmund Daukoru, Nigeria's oil minister and OPEC president, said Friday the group is likely to trim production again and he expects a cut of at least 500,000 barrels a day.

OPEC is expected to address the need to sharply accelerate oil production cuts they have implemented to stem an oversupply, seen mainly in the bulging inventories of the wealthiest industrialized nations.

In other Nymex trading, heating oil futures rose 0.36 cent to $1.8125 a gallon, while natural gas prices fell 1.03 cents to $7.703 per 1,000 cubic feet. Unleaded gasoline held steady at $1.6674.