Oil prices leapt to fresh post-Iraq war highs on Friday, driven by fears Arctic weather in the United States will eat into crude stocks that are already at their lowest since 1975.
New York light sweet crude was trading 62 cents higher at $34.60 a barrel, the highest price since last March, just before the US-led war in Iraq. In London, Brent futures were 57 cents up at $31.65, just down from a 9-1/2-month peak of $31.80.
Traders and analysts said there could be short bouts of profit taking, led by investment funds, but overall sentiment would probably stay strong in the near term.
"US inventories are deemed to be near critical levels. To go short does not make sense," said Ian Henderson, vice president and fund manager of J.P. Morgan Fleming.
Government data this week showed crude stocks in the United States, the world's biggest oil consumer, had fallen to 269 million barrels, their lowest since 1975.
Colder than normal temperatures have taken hold of the US north-east, the world's biggest market for heating oil, raising the prospect of a further draw down in oil stocks.
Weather forecasters AccuWeather and EarthSat said the Northeast would warm up early next week, but then turn much colder again.
Oil markets have also found support from the weak US dollar, which Opec has cited as a reason for sustaining high prices and which has provided an added incentive to buy oil for non-dollar investors.
"We'd be trading around $32.50 if it weren't for the dollar moves," said a London-based broker, who declined to be identified.
While nominal oil prices rose last year to their highest annual average for more than two decades, the dollar sank about 17 percent against the euro and 10 percent against the yen. The dollar has fallen to fresh lows against major currencies this year.
So far the Organisation of the Petroleum Exporting Countries has maintained tight supplies, although the cartel's president, Purnomo Yusgiantoro, told Reuters on Thursday Opec would like to see prices lower.
The cartel is set to meet on February 10 in Algiers to consider production policy amid concern among the group that there will be a seasonal downturn in demand in the second quarter.
With oil prices so high, cutting output could prove politically difficult for the group, which has come under fire from the United States for saying high oil prices were justified, given the weakness of the dollar.
US Energy Secretary Spencer Abraham said on Friday the US would continue to buy oil for its strategic reserves despite the high prices.
"The volume is very modest and it doesn't affect the markets," he told reporters during a visit to Tokyo.
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