Oil: London Brent hits 3-week high on Opec, US cold

LONDON - London oil prices rose to a three-week high on Monday on concerns over a possible second quarter Opec production cut, tightening global market forecasts and cold weather in the United States.

Oil futures on London's International Petroleum Exchange (IPE) rose as high as 74 cents but eased to close 41 cents up at US$46.75 a barrel. Trade was limited by the closure of the New York Mercantile Exchange (NYMEX) for a US national holiday.

US oil futures climbed 81 cents to US$48.35 a barrel on Friday, their highest closing level in more than three weeks, as dealers focused on the possibility of Opec trimming output and a short cold spell in the US Northeast.

Talk that Opec is leaning toward reining in production ahead of the second quarter has been compounded by revised forecasts for a tighter-than-expected market this year.

"Oil market fundamentals remain extremely solid," SG Commodities said in a report. "Demand continues to rise at a sustained speed...Supply remains under the strict control of Opec. "

While a healthy 8.5 per cent year-on-year surplus in US crude oil inventories should soothe any concerns about short-term market tightness, dealers still worry that further builds could prompt tightening measures from Opec.

The Organisation of the Petroleum Exporting Countries meets on March 16 in Iran to decide on second-quarter policy.

Ali al-Naimi, oil minister of the cartel's top producer Saudi Arabia, said on Monday an increasing rise in world oil stockpiles would bring prices lower.

"The commercial inventories are today at 51 days and this is a good level according to oil market fundamentals, and we do not expect inventories to build up beyond 52 days in the second quarter as this would directly affect oil prices," he said.

Opec has said it would consider inventories in OECD industrialised nations at 56 days of forward demand cover as excessive and would trigger discussion of supply cuts.

The market has also been supported by cold temperatures in the heating-oil consuming US Northeast, which should give a fillip to winter demand as the season winds down.

DRIVING SEASON AHEAD

Traders began to anticipate the start of US summer driving season in May. Petrol stocks rose last week to their highest level since 1999, helping defuse concerns that tight supplies could cause a springtime price spike.

But analysts PFC Energy said in a weekly report that high petrol stocks would not last long as a bearish factor, adding that it would be offset by bullish considerations and another run past US$50 per barrel looked inevitable.

PFC pointed to "robust product demand, a global economy that can live with high oil prices and a flurry of geopolitical events in the Middle East".

US President George W. Bush said on Monday in a speech during a trip to Europe that Iran should cut off support for terrorism and disavow nuclear weapons.

Speculative hedge funds, whose participation in the market has climbed swiftly in recent years, increased their long positions in US crude futures slightly to 31,628 lots in the week ended Feb. 15 in a bet prices would rise.

On the consuming side, China reported producer prices rising 5.8 per cent in the year through January, the slowest rate in eight months, which analysts said would reduce pressure on the government to cool economic growth.

China's booming economy has been one of the main driving forces behind sky-high global oil prices.

- REUTERS