Oil edged up towards $80 a barrel today as traders moved to cover short positions, taking advantage of a drop to 2010 lows the previous day on a surprise rise in US distillates and crude stocks.
Crude inventories in the United States climbed by a larger-than-expected 3.7 million barrels last week, while distillate stocks posted an increase of 1.4 million barrels, against expectations for a decline, the US government Energy Information Administration (EIA) said yesterday.
US crude for February rose 23 cents to $79.88 a barrel at 0336 GMT after trading as low as $78.37 on Wednesday, the lowest intraday price this year, after the EIA released the stockpile data. Prices had reached a 15-month intraday high of $83.95 a barrel on Monday.
London Brent crude for February, which expires later today, gained 18 cents to $78.49 a barrel.
"I could not find any bullish news from a fundamental point of view, but I suppose a lot of short covers came in," said Ken Hasegawa, a commodity derivatives manager at brokerage Newedge in Japan.
"Prices are moving in a $75-$85 range. It was very good timing to buy back the market," he added, referring to the price fall after the inventory figures were published.
US oil stockpiles have bulged over the past 18 months as the economic crisis has cut energy demand. Recent icy weather over much of the world's largest energy consuming nation drained heating oil stocks by 1.1 million barrels in the week ended January 8th, the EIA reported.
But that was insufficient to trigger a drop for the whole distillates category which groups heating oil with diesel and jet fuel. Overall U.S. distillates stocks had dropped in the previous four weeks.
Forecasts now show higher-than-normal temperatures in the US Northeast over the coming week, signalling heating fuel demand will remain lower than normal.
US distillates demand even failed to show a significant pick-up from year-earlier levels over the past four weeks, posting a drop of 4 per cent.
However, unseasonably cold weather conditions across Europe will hold heating demand "well above average" levels, forecaster DTN said, adding that an unusual cold pattern was set to prevail throughout Western Europe this week.
Gas oil futures on the ICE exchange rose more than $6 a tonne to surpass $642 today. Prices had tumbled to below $631 a day earlier, their lowest intraday price since December 28th.
Investors have looked to wider economic data in recent months for signs of recovery and a potential rebound in energy demand.
Two top Federal Reserve policy-makers said yesterday the US central bank will need to be certain the economic recovery is firmly in place before tightening its monetary policy stance.
The US economy cut 85,000 jobs in December and the unemployment rate stayed high at 10 per cent, but one Fed official expected jobs growth within a few months.
"We need to see a strong recovery of the economy in order to surpass $85," Mr Hasegawa said. "We will probably see the market trading quietly and it will not be moved outside the current range until after April."
Reuters