Oil prices surged to a 26-month high on Wednesday near $91 a barrel as a third straight weekly drop in US crude inventories and cold weather on both sides of the Atlantic spurred pre-holiday buying. Crude stockpiles fell 5.3 million barrels last week, bringing the past three weeks' declines to 19 million barrels, roughly equivalent to one day of US fuel consumption.
Companies have drawn down inventories for year-end accounting purposes, analysts said. US data showed the economy picked up in the third quarter, signalling a more solid pace of recovery and improving oil demand prospects. A Reuters poll released on Wednesday showed a surge in fuel demand in the fourth quarter sent 2010 growth to near record levels, adding support to prices in recent weeks, with further increases expected in 2011 as the economy improves.
US crude for February delivery traded 44 cents higher at $90.26 by 1:40 pm EST (1840 GMT), after touching $90.80, the highest since October 2008. Analysts now think US crude oil's next target is $93.05. In London, ICE February Brent crude rose 30 cents to $93.50. "With two days to go until Christmas Eve risk markets have ignited the afterburner, reinforcing one more time the all-pervasive mantra throughout 2010, 'What crisis?'," J.P. Morgan analysts said in a note.
With 2010 demand showing the biggest gains since 2004 and expectations of a modest increase in 2011, the Organisation of the Petroleum Exporting Countries could be pressured to open the taps next year, another Reuters poll showed. The poll of 12 top oil-tracking analysts showed that oil demand this year had recovered far faster than anyone predicted earlier in 2010, and while growth is expected to slow in 2011 it will still reach a new all-time high.
This year "turned out to be a year of recovery, with economic and oil demand growth clearly beating expectations", David Wech at JBC Energy in Vienna said. With non-Opec supply expected to rise by only 200,000 barrels per day next year, Opec could have to increase output by 800,000 bpd to keep pace with demand, the poll showed. Opec met earlier this month and agreed to hold oil output at current levels, even as prices move to the top of the preferred range flagged by many members.
While kingpin Saudi Arabia said it favoured a $70-80 a barrel range, other members such as Kuwait pegged $90 as a preferred top. Ministers from the Organisation of Arab Petroleum Exporting Countries (OAPEC), which includes Opec members such as Saudi Arabia, Algeria and Kuwait, will meet for two days starting on Friday. Oil found support from forecasts for cold weather in northern Europe and the United States, with US heating oil demand expected to average 4.6 percent above normal this week.
"Probably what's been the bigger factor with price has been the weather. It's cold in Europe. It's cold in China. And that's pushing spot demand," said Mark Kellstrom, analyst at Strategic Energy Research and Capital LLC in New Jersey. AccuWeather.com expects temperatures in the US Northeast to average mostly below normal for the next week, with slightly milder readings late this month. In Europe, fresh snow forecasts threatened to prolong chaos caused by a cold snap with airlines and rail networks struggling to restore normal services.
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