Oil drops to $82 from 15-month high
Oil slid further to below $82 a barrel on Tuesday from 15-month highs a day earlier, as forecasts showing milder temperatures in the U.S. Northeast signaled lower fuel consumption in the world’s largest heating oil market.
Icy weather in the United States so far had drawn down U.S. inventories of distillates, including heating oil. Stocks fell by 1.7 million barrels last week, a Reuters survey showed, their fifth-straight weekly drop.
U.S. crude for February delivery fell 55 cents to $81.97 a barrel at 12:39 a.m. EST, after hitting $83.95 on Monday, the highest intraday level since October 2008.
London Brent crude fell 62 cents to $80.35 a barrel.
“The market got a little bit ahead of itself after it broke $82 a barrel quite easily,” said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp.
“With the February contract going off the board next week, we will soon be looking ahead to the end of the winter. Refineries should be going back into maintenance soon in preparation for the gasoline season.”
U.S. Northeast temperatures were expected to average below normal through Wednesday, then average near to above normal through Friday, with the six- to 10-day forecast for near to above normal, according to DTN Meteorlogix.
Along with this, U.S. heating oil demand was forecast to be normal this week, after surging to 12 percent above normal last week, the National Weather Service said.
Refiners are also limiting their intake of crude, aiming to reduce a glut in oil products that has prevailed for more than a year despite the recent freeze.
The Reuters poll found that crude oil inventories rose 1.0 million barrels for their second consecutive week of gains. U.S. gasoline supplies also probably climbed 900,000 barrels, ahead of data from industry group American Petroleum Institute (API) at 4:30 p.m. EST on Tuesday.
Data from the U.S. government’s Energy Information Administration (EIA) will be released on Wednesday.
Oil futures also fell with Asian stock markets amid concern that a monetary policy tightening in China would curb demand for energy as economic stimulus measures are withdrawn.
China’s central bank on Tuesday signaled in its open market operations that it was tightening short-term liquidity at a faster-than-expected pace in response to rising concerns about the economy overheating.
U.S. and global oil demand will increase in 2010 and 2011, but the growth rate in petroleum consumption will not be as strong as in years past, according to advance details provided to Reuters on a U.S. government monthly energy supply and demand forecast.
The EIA expects the U.S. economy to grow about 2 percent this year and nearly 2.7 percent next year, leading to higher demand for oil.
Some support came from tensions in Nigeria’s main oil-producing region, which have removed supplies from the market.
Chevron said on Saturday it had been forced to shut down 20,000 barrels per day (bpd) of crude production in Nigeria, a day after security sources said gunmen had attacked a pipeline operated by the U.S. firm.
“The situation in Nigeria has not improved that much and it is a matter of time before it becomes a problem again,” Nunan said.
“We have had a year of reprieve from these geopolitical issues because the collapse in demand had created a cushion of supplies, but now that the economy looks like it will stabilize and return to growth this year, geopolitics is back in the market.”