Oil: Price holds firm on low winter fuel stocks

LONDON - Oil prices were firm on Thursday as low stocks of heating fuel in all major consuming regions fostered supply concerns ahead of winter.
London Brent was down just two cents at US$44.80 a barrel.

US markets were shut for the Thanksgiving holiday after closing at US$49.32 a barrel on Wednesday, around US$6 off a record peak one month ago.

Prices rose on Wednesday after a US government report showed heating fuel stocks in the world's largest energy consumer remained around 14 per cent below last year ahead of the winter.

A bigger-than-expected draw in US stocks of natural gas -- also used as a heating fuel and for power generation -- fuelled price gains across the energy market. US natural gas futures jumped 15 per cent on news of the draw.

"We think the market is still extremely vulnerable," said Frederic Lasserre, head of commodities research at SG, in a briefing to reporters in Singapore. "If we have a colder winter, we may retest the highs of a month ago."

Stocks are also low in Europe, leaving less than usual for export to the United States. In Japan, winter kerosene heating stocks are seven per cent below last year, despite rising almost three per cent over the past week.

So far, major consuming nations have experienced mild winter weather, though US government and private forecasters are expecting temperatures in the winter months to average slightly colder than normal.

A cold spell could drive up domestic heating oil usage in the heavy-consuming northeast, adding to US distillate demand that is already running about eight per cent above last year due to strong trucking and manufacturing activity.

OPEC is pumping at its fastest rate in 25 years but still struggling to keep pace with strong demand growth from the United States and Asian powerhouses China and India.

That has left the world with a very thin capacity cushion to deal with supply problems. Global refining and shipping operations have also strained to keep pace with the demand surge.

"My feeling is that the market is pricing in something new, a longer term perspective," said Lasserre. "For the last 20 years the industry has been living with market overcapacity. Now it is shifting to undercapacity for the next 3-5 years."

Venezuelan President Hugo Chavez said on Thursday his country will ask the oil cartel to revise the bottom end of its official price target range up to at least US$30 per barrel.

The current OPEC price corridor of US$22-US$28 was defunct, Chavez told Reuters. "It has been pulverized. We believe that now the minimum should be US$30 a barrel and the maximum whatever the market says," he said.

Concerns resurfaced over Russian oil giant YUKOS as the firm's senior managers fled the country, fearing arrest in a government tax crackdown. Industry sources said the company's December exports should continue normally.

In Iraq, exports from the main southern terminal were cut by 800,000 bpd following a pipeline blast on Monday. Oil sources said it may take a week to mend the corroded pipeline.

Canada's 165,000 bpd Terra Nova field has been shut since the weekend, with operator Petro-Canada talking to regulators on restarting output after an oil spill.

- REUTERS