US crude oil futures rose to a fresh six-week high today as freezing weather hit the Northeast heating oil market, threatening to strain already tight winter fuel stockpiles.
Crude futures on the New York Mercantile Exchange settled up 34 cents at $48.38 a barrel after touching a peak of $48.65, the highest level since 1 December.
Dealers were concerned that frigid weather will sap already tight US heating oil supplies, which as of last week were around 7% below the previous year's levels.
The disruptions coincide with OPEC's implementation of a 1m barrells per day output cut from 1 January. The Organization of the Petroleum Exporting Countries is scheduled to meet at the end of January to discuss whether further cuts may be necessary as the northern winter ends and oil demand seasonally falls in the second quarter.
Yesterday's $2 rally was driven by an 8% jump in US natural gas prices due to freezing temperatures in the US Midwest where natural gas is by far the most used heating fuel. The cold snap was expected to move into the Northeast by the weekend, pumping up demand in the world's largest heating oil market for as long as a week.
While the winter has been mild so far, some dealers said a sustained period of frigid weather could strain fuel supplies. US heating oil inventories at the end of last week were 7% lower than last year, the most recent government data showed.
Over 500,000 barrels per day of output in the US Gulf of Mexico, Nigeria and Norway's North Sea remain offline, while Iraqi exports have been reduced by continued sabotage on its northern pipeline infrastructure and power problems in the south.
The disruptions coincide with OPEC's implementation of a one million barrel per day output cut from January 1. The Organisation of the Petroleum Exporting Countries is scheduled to meet on January 30 to discuss whether further cuts may be necessary as the northern winter ends and oil demand seasonally falls in the second quarter.
Some members say the cartel may consider reducing supplies if prices fall below $40 a barrel.
