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Oil Ends At 3-Week High As Funds Move Into Market

CNBC.com
Tuesday, 30 Jan 2007 | 3:28 PM ET

U.S. crude oil futures jumped nearly $3 as more fund money moved into the market just ahead of weekly inventory data on Wednesday.

Government data were forecast to show a draw on distillates amid winter cold in the U.S. Northeast, the top heating oil market.

Crude prices were rebounding from a $1.41 slide on Monday just as the Organization of Petroleum Exporting Countries was due to cut 500,000 barrels per day of production starting Thursday.

That cut looms even though the market was getting indications the producer group was having trouble fully complying with the cut of 1.2 million barrels a day that was to have been implemented on Nov. 1.

"This market is really looking for direction after yesterday's big slide and, while people are looking for a draw in distillates when inventory data come out on Wednesday, we know that distillate stocks are adequate at this time," said Amanda Kurzendoerfer, commodities analyst at Summit Energy in Louisville, Kentucky.

New York oil settled up $2.96 at $56.97, the highest since Jan. 8.

Prices have bounced more than $6, or 13%, from the $49.90 low hit Jan. 18, but are down more than $22, or 28%, from the $78.40 record hit in July.

"There's a lot of money that had been on the sidelines that is starting to move in," said Stephen Schork, president of The Schork Report, an industry newsletter.

"If you look at the open interest, it lends credence to the theory ... we are seeing a lot of paper buying (and) we are up on the day and it is not because of the cold weather," Schork
said.

"I think the funds, or some new buyers, are definitely jumping into the fray right now," he added.

NYMEX heating oil and RBOB gasoline soared ahead of their front-month contract's expiration on Wednesday. But natural gas is the biggest mover of the day, shooting up as much as 12% on expectations that cold U.S. weather will take a big bite out of the high natural gas inventories.


The U.S. Energy Information Administration will release inventory data for the week ended Jan. 26 on Wednesday at 10:30 a.m. New York time.

A Reuters poll of analysts showed average forecasts for a 2.2-million-barrel draw in distillates, which include heating oil and diesel fuel.

Forecasters also called for an average increase of 1.4 million barrels in gasoline stocks and a rise of 1.3 million barrels in crude supplies.

Heating demand in the U.S. Northeast will average above normal or near to above normal during the majority of the next five days, private forecaster DTN Meteorlogix predicted Tuesday.

The six-to-10-day Meteorlogix forecast was for temperatures to average below to well below normal.

U.S. heating demand was expected to be about 9% above normal in this week, the National Weather Service forecast in its weekly report on Monday. Last week heating demand was about 1.4% above normal.

Demand for heating oil this week was expected to average 4.2% above normal, with heating demand for natural gas 9.2% above normal and heating demand for electricity
11.3% above normal, the NWS report showed.

Prices fell sharply on Monday after Saudi Arabia's outgoing ambassador to the United States, Prince Turki Al-Faisal, told reporters that U.S. oil prices near $50 a barrel were good for
producers and consumers.


Technicals

NYMEX March crude resistance was pierced at $56. Support was charted at $52.

Heating oil resistance fell at $1.60. Support was pegged at $1.50.

RBOB's resistance was slightly breached briefly at $1.50. Support was charted at $1.40.

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