Oil Prices Edge Cautiously Higher ($41.40/bbl)

Reuters ^ | December 28, 2004

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SINGAPORE (Reuters) - Oil prices edged cautiously higher on Tuesday, attempting to stem a fall of more than 10 percent in the last five sessions amid rising U.S. stockpiles and warmer-than-expected weather.

U.S. light crude oil futures were up 39 cents at $41.71 a barrel by 2:53 a.m. EST, taking a breather after Monday's more than 6 percent slump in holiday-thinned trade.

London's International Petroleum Exchange (IPE) was shut for a bank holiday on Tuesday.

Prices fell nearly $5 a barrel in as many days as an increase in U.S. distillate inventories and revised weather forecasts calling for above-average temperatures helped calm anxiety about a potential winter fuel supply crunch.

U.S. domestic heating needs will be nearly 18 percent below normal in the coming week, with the heavy consuming New England area 7.7 percent below average, the U.S. National Weather Service forecast on Monday.

The more bearish short-term outlook for oil demand may have also encouraged speculators to take accumulating profits out of the market, which is up 28 percent since the start of the year.

"Speculators do not like to have positions at the end of the year," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.

Big-money funds had moved back to the long side of the crude market as of a week ago, holding a very small net position of 1,638 lots, U.S. data showed, but they are likely to have gone short amid the steep sell-off since then, dealers said.

Traders will now look to Wednesday's weekly U.S. stockpile report to see whether low heating oil supplies will be sufficient to comfortably last the winter.

Distillate stocks, which include heating oil and diesel, are forecast to have dipped 720,000 barrels in the week to Dec. 24 as cold weather spurred demand in the Northeast, a preliminary Reuters poll of eight analysts showed.

Analysts had also expected inventories to fall in the previous week, but they rose 700,000 barrels instead.

Crude tanks were seen sliding 200,000 barrels and gasoline stocks rising 240,000 barrels last week, the poll showed.

Unless winter fuel supplies make up some of their nearly 12 percent deficit versus last year, the market is likely to remain on edge well into the first quarter, which forecasters expected to be colder than usual.

Global crude production outages are also still sapping some 500,000 barrels per day (bpd), although a Nigerian community leader said on Monday that a protest shutting in 120,000 bpd of output could be resolved this week.

In Asia, the death toll after Sunday's huge earthquake and tsunami climbed to more than 28,000, but oil production, shipping and refining operations were unaffected.

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12/28/04 Session Contract Detail for February 2005

	Last				41.40
	Open High				41.25
	Open Low				41.25
	High				41.72
	Low				41.00
	Settle				41.32
	Change				0.08
	Open Interest				113631
	Volume				0
	Last Updated				12/28/04 04:40:35