Oil prices closed one percent higher on Thursday, hovering just under their nine-month peaks, bolstered by frigid weather in the U.S. Northeast amid low crude oil inventories in the United States.
U.S. light crude futures settled in New York at $33.98 a barrel, up 36 cents. Benchmark Brent in London also rose one percent, ending up 32 cents at $31.24 a barrel.
Commercial crude supplies in the U.S. slipped to their lowest level since 1975 last week, government data issued on Wednesday showed, even as OPEC has been producing well above quotas in an effort to moderate prices.
“We would like to have prices a little bit down,” Purnomo Yusgiantoro, president of the Organization of the Petroleum Exporting Countries, told Reuters in Jakarta.
The group’s 10 members bound by quotas collectively overproduced the 24.5 million barrel per day (bpd) limit by an estimated 1.6 million bpd in December, a Reuters survey found.
Cold weather has helped push up prices this week as a freezing front now buffeting the U.S. Northeast is expected to increase demand for winter fuel in the world’s biggest heating oil market, which in turn should cause stockpiles to fall.
There will be a brief period of warmer temperatures in the U.S. Northeast early next week but then the region will once again see below-normal temperatures, forecasters said.
“There’s no doubt that we’ll see temperatures climb into the 40’s (degrees Fahrenheit) in Boston early next week, but it will quickly return to ferocious cold,” said AccuWeather forecaster Joe Bastardi.
Crude oil and heating oil supply fears were only marginally eased on Wednesday with data from the U.S. government which showed that national distillate stocks, including heating oil, rose a bigger-than-expected 6.4 million barrels to 135.5 million barrels in the week ended January 2.
Despite the build, U.S. crude prices remain near Tuesday’s post-Iraq war high of $34.35 a barrel.
“There are two main reasons for this in our view: Firstly, a wave of very cold weather moving across the U.S. Northeast, which is expected to persist into next week, means that market participants are more concerned about future movements in heating oil inventory than in recent history,” said Barclays Capital analyst Kevin Norrish.
“Furthermore the market is firmly underpinned by the extremely low level of U.S. oil inventory,” Norrish added.
Wednesday’s report showed crude inventories falling to 269 million, their lowest since October 1975.
OPEC President Purnomo, also Indonesia’s oil minister, said the cartel wanted prices to fall to $28 for the basis of OPEC basket of crudes, which now stands at $30.33.
“OPEC has contributed what is necessary to produce to stabilize the price,” he told Reuters in an interview.
The producer group, due to meet in Algiers on Feb. 10 to consider output policy, faces a dilemma because it may be necessary to cut supply in preparation for the second quarter when demand generally falls.
But high world oil prices would make a cut politically difficult, drawing criticism from major consumers like the United States that in 2003 had to swallow the highest average oil price in more than two decades.
Purnomo said supply leaks by OPEC members over official production was helping to contain oil prices and added that a cut in production was not a foregone conclusion at the Algiers’ meeting.
“I would say it’s really too early to say. A lot of analysts are saying that OPEC is meeting in Algiers to cut production but I would not say that yet,” he said.
The weakness of the U.S. dollar has also contributed to oil’s strength in recent months, as OPEC members have used their lessened purchasing power to justify a price at the top of their $22-$28 price band.
Oil analysts have also taken heed of the de facto target increase.
A group of 16 analysts are now forecasting a 2004 average Brent price of $24.70 a barrel, up from $23.10 in a September poll, a Reuters survey found.