Oil set for strong weekly rise

18 December 2009

Crude oil prices are set to rise further today (December 18th), taking weekly gains to their highest level seen since October.

The rally this week was driven largely by a stronger-than-expected report from the Energy Information Administration (EIA), which showed a large drawdown in inventories of products such as crude, propane and distillates such as heating oil in the US.

The EIA data provided a fillip for the oil and gas market after weeks of mounting concern about the anaemic state of demand in the US, the world's largest energy consumer.

In previous weeks, the EIA had recorded a series of inventory builds, indicating that the US energy industry is producing and buying more energy than the country needs.

Heating oil demand had been a particular cause of concern as the usual seasonal buying activity had yet to set in.

However, the EIA data released on Wednesday showed a 2.9 million-barrel drawdown in distillate stocks, while propane inventories were down by 3.98 million barrels, suggesting the winter heating season is now getting into full swing.

Crude oil stocks were also down by a larger-than-anticipated margin of 3.7 million barrels, the data showed.

Responding to the figures, traders sparked a rally in both crude and heating oil on the New York Mercantile Exchange, helping to push the headline crude contract up over $3 (£1.84) to more than $73 a barrel.

Speaking to Reuters this morning, Sumisho Sano, general manager of research at Tokyo-based SCM Securities, said that a large number of traders are buying up crude and heating oil due to expectations that a new front of cold weather will sweep the US, inspiring further buying among consumers.

Many domestic heating oil customers look to avoid the seasonal jump in prices by buying heating oil in bulk during the summer, when prices are usually lower. For those living in the UK and Ireland, it may be worth getting in contact with your local supplier to discuss bulk buying options.