Oil Falls on Signs U.S. Fuel Supply Is Adequate to Meet Demand

Crude oil fell on speculation that U.S. fuel inventories are sufficient to meet demand as temperatures decline.

Prices jumped as much as 2.8 percent in early trading because of forecasts for colder weather in most of the U.S. Inventories of crude oil, heating oil, natural gas, gasoline and diesel in the week ended Jan. 12 were above the five-year average for the period, the U.S. Energy Department said last week.

“The weather isn’t extreme enough to sustain gains because supplies are ample,” said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. “We could see oil decline another $3 or $4 a barrel in the next week or two.”

Crude oil for February delivery fell 86 cents, or 1.7 percent, to close at $51.13 a barrel on the New York Mercantile Exchange. Futures touched $49.90 on Jan. 18, the lowest since May 25, 2005. Prices are 25 percent lower than a year ago.

The February contract expired today. The more-active March futures contract declined 82 cents, or 1.5 percent, to close at $52.58 a barrel.

The Organization of Petroleum Exporting Countries, which produces about 40 percent of the world’s oil, decided in the fourth quarter to cut output by 1.7 million barrels a day by Feb. 1 in an effort to bolster prices. Saudi Arabian Oil Minister Ali al-Naimi last week rejected calls from other OPEC members for an emergency meeting to discuss an additional reduction.

“We will need to see an emergency OPEC meeting, a significant worsening of the geopolitical situation or a real shocker in the upcoming DOE reports to see a sustained rally in oil prices,” Ritterbusch said.

U.S. Inventories

An Energy Department report on Jan. 24 will show that crude oil and gasoline stockpiles rose last week, according to the median of 11 responses in a Bloomberg News survey. Analysts were split on whether supplies of distillate fuel, a category that includes heating oil and diesel, rose or fell last week.

Heating use in the Northeast, the region responsible for 80 percent of U.S. heating-oil consumption, will be 7 percent above normal this week, Missouri-based forecaster Weather Derivatives said. Warmer-than-normal weather curbed heating-fuel consumption during the first two weeks of this month.

“The colder temperatures aren’t simply an imaginary issue,” said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. “Colder weather will create greater demand and may eventually shift the sentiment of the entire petroleum sector.”

Brent crude oil for March settlement fell 74 cents, or 1.4 percent, to close at $52.70 a barrel on the London-based ICE Futures exchange.

Source: www.bloomberg.com