Oil: Price rebounds from 4 month low on winter stock worries

LONDON - Oil prices jumped from a four-month low on Wednesday as slow growth in US heating fuel inventories heightened fears for tight winter supplies.

US light crude rose to $42.20, up 74 cents on the day, lifted by heating oil buying and wider cracking spreads that followed US government data showing heating oil inventories rose only 100,000 barrels in the week to December 3.

London's Brent crude climbed 78 cents to $39.05.

News of the slower than expected heating oil build pulled the US market off a $40.45 low, the weakest since late-July, hit after leading Opec producer Saudi Arabia questioned the need for the cartel to curb supplies.

Some within Opec have called for the group to at least cut back its over-quota production to combat sliding prices, which have dropped about $7.50, 15 percent, in the seven trading sessions since last Monday.

The US Energy Information Administration said distillate stocks rose by about 1.4 million barrels in the week ended Dec. 3, the third weekly increase in a row, and roughly in line with expectations.

However, key heating oil stocks accounted for only 100,000 barrels of this build, leaving total levels more than 13 percent below year ago, and triggering a 3.4 percent rise in NYMEX heating oil futures to $1.2650 per gallon.

Crude inventory builds came at 600,000 barrels in the week, to sit at 293.9 million barrels.

Jim Ritterbusch, President of Ritterbusch and Associates, said distillate demand was almost the same as last week. "Sometimes you'll see distributors back off in a market that was plunging like it was last week, but apparently they kept buying," he said.

"The main impact is to prop heating oil up against the rest of the complex, but I don't look for that to be sustained."

Influential Saudi Oil Minister Ali al-Naimi said that as long as buyers required the oil, Riyadh would keep pumping in January at the high 9.5 million barrels a day (bpd) it has sustained since August.

That would probably mean Opec maintaining production close to recent 25-year highs, despite calls from other ministers in the cartel for a clampdown in output now being pumped beyond official supply limits.

Most of the surplus of about one million barrels daily over limits of 27 million bpd is being delivered by Saudi Arabia, the only producer with spare capacity.

The Organisation of the Petroleum Exporting Countries meets in Cairo on Friday to set output policy for the first quarter.

Speaking in Cairo, Naimi said world crude stocks were not building too fast and questioned the need for Opec to act to limit output with prices still above the group's formal target.

"The winter is coming, our band is still $22-$28, so why should we do anything?," Naimi said.

"The Opec basket is still $33, the winter has not even started in the (US) northeast," Naimi said.

For more than a year the value of Opec's reference basket of crudes has been above its official $22-$28 target range. Many ministers want to defend a higher price, with a floor at about $30.

And many want at least to rein back production to the group's official 27-million-bpd output limit.

"We're going to evaluate the levels of overproduction and, if needed, we're going to call for quotas to be respected again," added Venezuelan Energy Minister Rafael Ramirez.

- REUTERS