Oil Boom Profits

Crude oil surged to its biggest gain in 16 months on speculation that colder weather and an improving economy will spur U.S. fuel consumption.

The National Weather Service predicted that below-normal temperatures will persist in the eastern U.S. for the next two weeks, and the price of natural gas, the country's most common home-heating fuel, jumped 11 percent. Consumer confidence in the U.S., where 25 percent of the world's oil is consumed, neared a five-year high, a report today showed.

``It's finally gotten cold, which will boost demand for natural gas and heating oil,'' said Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons in St. Louis. ``There's been a steady stream of good economic news in the U.S. It's gotten to a point where the energy markets can no longer shrug off the economic numbers.''

Crude oil for March delivery rose $2.91, or 5.4 percent, to $56.92 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. A settlement at that price would be the biggest one-day gain since Sept 19, 2005. Futures touched $57.05, the highest since Jan. 8. They are 17 percent lower than a year ago.

Brent crude oil for March settlement increased $2.71 to $56.39 a barrel on the London-based ICE Futures exchange.

Oil prices fell Monday despite forecasts of continued cold weather across the U.S. East Coast, a major market for heating oil.

An unusually warm winter in the U.S. drove crude oil below $50 a barrel earlier this month, but the price has since risen about 10 percent as cold weather returned. Forecasters predicted below-normal temperatures on the U.S. East Coast region would continue into at least the first week of February.

"The continuation of cold weather in the United States -- after a pretty warm start of the winter -- helps shore up prices because if there was no cold weather at all, there would be huge inventories," said Tobin Gorey, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "The market's not worried about that any longer."

Light, sweet crude for March delivery on the New York Mercantile Exchange fell 34 cents to $55.08 a barrel in electronic trading by early afternoon in Europe. The contract had risen $1.19 on Friday.

Oil prices rose more than US$1 to settle above US$55 a barrel on Friday on concerns that producers were complying with OPEC's production cuts and on expectations of continued blustery weather in the northeastern US.

Light, sweet crude for March delivery on the New York Mercantile Exchange rose US$1.19 to settle at US$55.42 a barrel. In a volatile week of trading, oil prices have climbed nearly 6.6 percent after dipping below US$50 a barrel last week.

On the ICE Futures exchange in London, Brent crude settled at US$55.29 a barrel, up US$1.17.

Tank tracker Lloyds Marine Intelligence Unit said on Friday that oil exports from OPEC fell to less than 23 million barrels a day last month from just under 24 million barrels a day in November, according to a Dow Jones newswire report.

Saudi Arabia, the world's largest crude oil producer and exporter, was the quickest to implement OPEC's production cuts; its exports last month were 1.1 million barrels a day lower than before the OPEC's October call for production cuts.

"The market has been concerned about the rate of OPEC compliance. Yesterday, it was worried compliance was bad. Today, it's worried that it's good," said Tim Evans, an energy analyst at Citigroup Global Markets. "Overall, the larger story is that OPEC production is declining."

OPEC said it would begin cutting production by 1.2 million barrels a day in November, but some traders speculated that cartel members were not complying. The cartel said late last year it planned to cut production an additional 500,000 barrels a day starting on Feb. 1.

On Thursday, tanker tracker Oil Movements said it expects exports from OPEC to rise in mid-February. The news sent oil prices down to settle at US$54.23 on Thursday, after rising as high as US$55.90 during earlier trading.

"The market has overcome that tracker report," said Phil Flynn, an analyst at Alaron Trading Corp in Chicago. "The market is thinking that OPEC compliance will be better as we go forward. Oil is looking very strong."

Victor Shum, energy analyst with Purvin & Gertz in Singapore, also pointed out that prices are being propped up by cold weather in the US and the announcement on Tuesday that the US government plans to double the size of its Strategic Petroleum Reserve.

"If you look at trading this week, the market has found some support above the US$50-a-barrel price mark. It appears to have found a floor due to a number of factors," Shum said.

Earlier this month, crude fell to US$50 a barrel, but it rose about 10 percent over the past week as cold weather gripped the northeastern US, a major consumer of heating oil.

Oil rose on speculation colder weather will increase the use of heating fuel in the U.S. just as OPEC starts to pump less crude.

Heating demand in the U.S. Northeast, the nation's biggest heating-oil consuming region, will be 14 percent above normal through Feb. 1, said Weather Derivatives, a forecaster in Belton, Missouri. The Organization of Petroleum Exporting Countries, the producer of about 40 percent of the world's crude, last month agreed to cut output by 500,000 barrels a day starting Feb. 1.

Working gas in storage was 2,757 Bcf as of Friday, January 19, 2007, according to EIA estimates. This represents a net decline of 179 Bcf from the previous week. Stocks were 251 Bcf higher than last year at this time and 472 Bcf above the 5-year average of 2,285 Bcf. In the East Region, stocks were 291 Bcf above the 5-year average following net withdrawals of 75 Bcf. Stocks in the Producing Region were 170 Bcf above the 5-year average of 682 Bcf after a net withdrawal of 61 Bcf. Stocks in the West Region were 11 Bcf above the 5-year average after a net drawdown of 43 Bcf. At 2,757 Bcf, total working gas is above the 5-year historical range.

Crude oil fell, paring yesterday's 4.7 percent gain, after an Energy Department report showed that the U.S. has ample fuel inventories.

Crude-oil supplies rose 789,000 barrels to 322.2 million last week, according to the report. Stockpiles of distillate fuel, which include heating oil and diesel, climbed 750,000 barrels to 142.6 million, the report showed. Yesterday, prices jumped the most since September 2005 after the U.S. said it would double the Strategic Petroleum Reserve by 2027.

Crude oil rose as cold weather spurred heating demand in the U.S. and militants took 26 hostages in Nigeria, threatening supplies from Africa's largest producer.

Temperatures are likely to fall below normal in the eastern U.S. during February as an El Nino weather pattern weakens, according to the Climate Prediction Center in Camp Springs, Maryland. In Nigeria, kidnappers seized 24 Filipinos, an American and a Briton, according to Nigerian and Philippine authorities.

The price of oil ``turned positive because there's colder weather,'' said Christopher Bellew, a broker with Bache Financial Ltd. in London. ``We should see drawdowns in heating oil inventories,'' he said.

Crude oil for March delivery rose as much as 97 cents, or 1.8 percent, to $53.55 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $53.33 at 2:52 p.m. in London. Brent crude oil for March gained as much as $1.03, or 2 percent, to $53.73 a barrel in electronic trading on the ICE Futures exchange in London and traded at $53.50.

Crude oil rose on forecasts for colder U.S. weather over the next two weeks that would increase demand for heating fuels.

Heating use in the Northeast, the region responsible for 80 percent of U.S. heating-oil consumption, will be 7 percent above normal in the week ending Jan. 29, Belton, Missouri-based forecaster Weather Derivatives said. Warmer-than-normal weather curbed demand for heating fuels, contributing to a 13 percent plunge in oil prices so far this year.

``The change in the weather is supporting crude oil and all of the other energy markets,'' said Eric Wittenauer, an energy analyst at A.G. Edwards & Sons Inc. in St. Louis. ``It's not going to get above freezing in much of the East today, which will boost heating-oil consumption.''

Crude oil for February delivery rose $1.16, or 2.2 percent, to $53.15 a barrel at 10:27 a.m. on the New York Mercantile Exchange. Futures touched $49.90 on Jan. 18, the lowest since May 25, 2005. Prices are 22 percent lower than a year ago.

Summary of Weekly Petroleum Data for the Week Ending January 12, 2007

U.S. crude oil refinery inputs averaged 15.1 million barrels per day during the
week ending January 12, down 502,000 barrels per day from the previous week's
average. Refineries operated at 87.9 percent of their operable capacity last
week. Gasoline production declined last week compared to the previous week,
averaging over 9.1 million barrels per day, while distillate fuel production
decreased significantly, averaging 4.0 million barrels per day.

U.S. crude oil imports averaged nearly 11.1 million barrels per day last week,
up nearly 1.6 million barrels per day from the previous week. Over the last four
weeks, crude oil imports have averaged nearly 10.0 million barrels per day, or
73,000 barrels per day more than averaged over the same four-week period last
year. Total motor gasoline imports (including both finished gasoline and
gasoline blending components) last week averaged over 1.0 million barrels per
day. Distillate fuel imports averaged 277,000 barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic
Petroleum Reserve) jumped by 6.8 million barrels compared to the previous week.
At 321.5 million barrels, U.S. crude oil inventories are above the upper end of
the average range for this time of year. Total motor gasoline inventories rose
by 3.5 million barrels last week, and are at the upper end of the average range.
Distillate fuel inventories increased by 0.9 million barrels, and remain above
the upper end of the average range for this time of year. Increases were seen
in both high-sulfur distillate fuel (heating oil) inventories and diesel fuel
inventories (a combination of ultra-low-sulfur and low-sulfur). Total
commercial petroleum inventories climbed by 9.0 million barrels last week, and
are above the upper end of the average range for this time of year.

Total products supplied over the last four-week period has averaged over 20.2
million barrels per day, or 3.5 percent less than averaged over the same period
last year. Over the last four weeks, motor gasoline demand has averaged nearly
9.2 million barrels per day, or 1.2 percent above the same period last year.
Distillate fuel demand has averaged over 4.1 million barrels per day over the
last four weeks, or 3.6 percent below the same period last year. Jet fuel demand
is down 1.7 percent over the last four weeks compared to the same four-week
period last year.

Oil fell to a 20-month low Wednesday, within striking distance of the psychologically key $50 mark, as top exporter Saudi Arabia saw no reason to worry over the market's 18 percent slide so far this month.

U.S. crude futures tumbled to an intraday low of $50.28 a barrel, the lowest level since May 25, 2005. By 8:15 a.m. ET, the February contract traded 83 cents lower at $50.38.

Oil prices slumped Tuesday after OPEC powerhouse Saudi Arabia reportedly said there was no need for further production cuts to prop up the market.

The comments, by Saudi Oil Minister Ali Naimi, added to growing sentiment that the Organization of Petroleum Exporting Countries would not call a special meeting any time soon to discuss further production cutbacks to stem a more than 13-percent slide in prices this year.

"There is no need now (for further cuts) on the basis of what market conditions are," Dow Jones Newswires quoted Naimi as saying after arriving in New Delhi for an international conference organized by India's Oil Ministry.

Benchmark light sweet crude plummeted $1.43 to $51.56 in morning trading on the New York Mercantile Exchange, after hitting a new 19-month intraday low of $51.25. The price was being compared with Friday's Nymex settlement as the exchange was closed Monday for the Martin Luther King Jr. holiday.

February Brent crude on London's ICE Futures exchange fell 76 cents to $52.36 on Tuesday on London's ICE futures exchange.

Heating oil futures slid nearly 2 cents to trade at $1.4860 per gallon; gasoline futures fell 4.3 cents to $1.3890; and natural gas futures dropped 2.9 cents to $6.572 per 1,000 cubic feet.

Crude oil rose from a 19-month low in New York after some traders said this week's drop in oil prices wasn't justified. Some analysts expect OPEC's members to cut production to stop prices from declining.

Crude oil fell 6.4 percent this week in New York as mild weather in the U.S. Northeast, the region that consumes the most heating oil, cut demand. OPEC President Mohamed al-Hamli said yesterday's drop below $53 a barrel was ``unacceptable'' and urged members to comply with the cuts in output they had promised to make in November and in February.

``The supply sides are going to remain tight,'' said Greg Smith, the U.K. managing director of the investment advisers Fat Prophets U.K. Ltd. ``OPEC can be successful in getting that price up, certainly getting it back towards $60 a barrel.''

Crude oil for February delivery rose as much as $1.06, or 2 percent, to $52.94 a barrel in after-hours electronic trading on the New York Mercantile Exchange, its first gain this week. The contract traded at $52.34 at 12:58 p.m. in London.

Brent crude oil for February settlement climbed as much as $1.24, or 2.4 percent, to $52.94 a barrel in electronic trading on the ICE Futures exchange and traded at $52.36 in London.

Some analysts and brokers expect a forecast for colder weather next week to push prices higher. Colder weather will reach the northeastern U.S. Jan. 17 through Jan. 21, according to the U.S. National Weather Service. Temperatures in the region were milder than normal through the first part of winter. New York had its third-warmest December on record.

``The temperature is expected to drop below normal after'' the next five days, said Michael Davies, an analyst in London with broker Sucden (U.K.) Ltd. ``Many traders are expecting OPEC to take action in order to support prices.''

Working gas in storage was 3,025 Bcf as of Friday, January 5, 2007, according to EIA estimates. This represents a net decline of 49 Bcf from the previous week. Stocks were 401 Bcf higher than last year at this time and 461 Bcf above the 5-year average of 2,564 Bcf. In the East Region, stocks were 241 Bcf above the 5-year average following net withdrawals of 28 Bcf. Stocks in the Producing Region were 182 Bcf above the 5-year average of 751 Bcf after a net withdrawal of 9 Bcf. Stocks in the West Region were 38 Bcf above the 5-year average after a net drawdown of 12 Bcf. At 3,025 Bcf, total working gas is above the 5-year historical range.

Chevron Corp.'s fourth-quarter results will be hurt by a drop in realized crude oil prices, lower production and weaker profit from its refining business, the company warned late Tuesday.

Shares of the nation's second-largest integrated oil company fell 67 cents in Wednesday morning trading to $69.95.

Wall Street doesn't expect Chevron to top its third-quarter or year-ago results in the fourth quarter. The company reported net income of $5.02 billion, or $2.29 per share, on revenue of $54.21 billion in the third quarter, and $1.86 per share in the year-ago period.

Analysts polled by Thomson Financial are looking for profit of just $1.82 per share in the current fourth quarter.

The market price of crude declined during the fourth quarter, and Chevron's average realized prices fell as well.

In the U.S., Chevron saw its average realized crude price drop from both the third and year-ago quarters to $52.26 a barrel. Average realized crude prices were 18 percent higher in the third quarter at $63.98 and slightly higher in the fourth quarter of 2005 at $52.87.

Natural gas prices fell by roughly half year over year. Chevron estimates its average realized gas price slid to $5.42 from $10.22 per 1,000 cubic feet a year ago and $5.93 in the third quarter.

Chevron estimates it has produced 766,000 barrels of oil equivalent in the fourth quarter through November, up from 717,000 barrels in the year-earlier period but lower than the 772,000 barrels produced in the third quarter.

U.S. production of oil liquids and natural gas fell almost 1 percent from the third quarter, Chevron said, due to planned maintenance and construction activity, particularly in the Gulf of Mexico. International production declined about 3 percent at the same time.

On the refining side, scheduled downtime reduced output in the quarter. Refining margins -- or the spread between the cost of crude oil and the sale price of refined products -- narrowed in the fourth quarter, which is expected to result in weaker profit from the segment.

Chevron noted that its estimates are based on the first two months of the quarter, and fourth-quarter results may differ substantially from its outlook. The company plans to release its quarterly results on Feb. 2.

Crude oil rose for a second day on speculation that falling temperatures in the U.S. may boost heating demand in the world's largest energy consumer and as Russian supplies to Poland and Germany were curtailed.

Up to six inches of snow may fall today in parts of the U.S. Northeast, where four-fifths of the country's heating oil is burned, according to forecasting service Accuweather.com. Russian crude oil deliveries to Poland and Germany along a million barrel- a-day pipeline were halted following a dispute between Russia and Belarus, according to the Polish pipeline operator.

``The weather is the main driver of the market now,'' said Gerrit Zambo, an oil trader at BayernLB in Munich. ``Even small signs of cooler temperatures can bring prices back up toward the $60 a barrel region.''

Crude oil for February delivery rose as much as $1.41, or 2.5 percent, to $57.72 a barrel on the New York Mercantile Exchange and traded at $57.46 at 2:41 p.m. London time. Brent crude oil gained $1.35 to $56.99 a barrel on the London-based ICE Futures exchange.

Polish pipeline operator PERN Przyjazn SA and Grupa Lotos SA, Poland's second-largest refiner, said supplies via the Druzhba pipeline that transports Russian crude through Belarus were cut off last night. The Polish segment of the pipeline carries about 50 million tons of oil a year, including 27 million tons to German refiners.

U.S. Weather

Temperatures may drop below normal in the western U.S. this week and cooler weather will spread across most of the country until Jan. 20, according to the National Weather Service.

New York-traded crude rose 72 cents, or 1.3 percent, to $56.31 a barrel on Jan. 5 after dropping almost 9 percent the previous two sessions. Prices fell last week amid mild weather in the U.S. Northeast and after U.S. fuel inventories climbed more than expected.

Last week's price decline was the biggest since April 2005. The price of oil has plunged about 27 percent from the record $78.40 a barrel reached July 14 after Israeli forces invaded Lebanon to fight Hezbollah militants.

``The next move is likely to be back up again,'' said Adam Sieminski, chief energy economist at Deutsche Bank AG in New York. ``There could be rising hysteria in OPEC because a number of the countries like Iran and Venezuela have been spending like oil was going to stay at $70 a barrel.''

The Organization of Petroleum Exporting Countries agreed to cut output by 1.2 million barrels a day in November, citing slower-than-forecast demand growth and rising global stockpiles. Members agreed in December to cut another 500,000 barrels a day starting Feb. 1.

Working gas in storage was 3,074 Bcf as of Friday, December 29, 2006, according to EIA estimates. This represents a net decline of 47 Bcf from the previous week. Stocks were 433 Bcf higher than last year at this time and 408 Bcf above the 5-year average of 2,666 Bcf. In the East Region, stocks were 201 Bcf above the 5-year average following net withdrawals of 33 Bcf. Stocks in the Producing Region were 170 Bcf above the 5-year average of 772 Bcf after a net withdrawal of 5 Bcf. Stocks in the West Region were 37 Bcf above the 5-year average after a net drawdown of 9 Bcf. At 3,074 Bcf, total working gas is above the 5-year historical range.

Summary of Weekly Petroleum Data for the Week Ending December 29, 2006

U.S. crude oil refinery inputs averaged over 15.5 million barrels per day during
the week ending December 29, down 96,000 barrels per day from the previous
week's average. Refineries operated at 91.0 percent of their operable capacity
last week. Gasoline production declined slightly last week compared to the
previous week, averaging over 9.3 million barrels per day, while distillate fuel
production increased slightly, averaging 4.3 million barrels per day.

U.S. crude oil imports averaged over 10.1 million barrels per day last week, up
997,000 barrels per day from the previous week. Over the last four weeks, crude
oil imports have averaged over 9.4 million barrels per day, or 550,000 barrels
less than averaged over the same four-week period last year. Total motor
gasoline imports (including both finished gasoline and gasoline blending
components) last week averaged nearly 1.3 million barrels per day. Distillate
fuel imports averaged 385,000 barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic
Petroleum Reserve) declined by 1.3 million barrels compared to the previous
week. However, at 319.7 million barrels, U.S. crude oil inventories remain
above the upper end of the average range for this time of year. Total motor
gasoline inventories rose by 5.6 million barrels last week, and are in the
middle of the average range. Distillate fuel inventories increased by 2.0
million barrels, and are in the upper half of the average range for this time of
year. Increases were seen in both high-sulfur distillate fuel (heating oil)
inventories and diesel fuel inventories (a combination of ultra-low-sulfur and
low-sulfur). Total commercial petroleum inventories rose by 1.8 million barrels
last week, and are above the upper end of the average range for this time of
year.

Total products supplied over the last four-week period has averaged nearly 20.9
million barrels per day, or 3.0 percent less than averaged over the same period
last year. Over the last four weeks, motor gasoline demand has averaged over
9.3 million barrels per day, or 0.5 percent above the same period last year.
Distillate fuel demand has averaged nearly 4.3 million barrels per day over the
last four weeks, or 1.3 percent below the same period last year. Jet fuel demand
is down 8.1 percent over the last four weeks compared to the same four-week
period last year.

Oil prices plunged below $59 a barrel Wednesday as mild weather persisted in the United States, dampening demand for winter fuels such as heating oil and natural gas.

Light, sweet crude for February delivery on the New York Mercantile Exchange fell to $58.97 a barrel in midmorning trading, a drop of $2.08 from Friday's settlement price.

The Nymex trading floor was closed Monday for New Year's Day and Tuesday for the memorial service for former U.S. President Gerald Ford, although there was some electronic trading.

The Brent crude contract for February delivery fell $1.58 to $60.05 a barrel on the ICE Futures exchange, which was open on Tuesday.

In New York City, temperatures on the first day of 2007 hit a peak of 54 degrees Fahrenheit _ much warmer than normal.

But many analysts expect crude oil futures to stay on average above $60 a barrel this year because of robust demand growth in Asia and the Middle East, efforts by the Organization of Petroleum Exporting Countries to trim supply and market-rattling instability in suppliers such as Nigeria and Iraq.

OPEC's concerns that high global stockpiles and sluggish demand would undermine prices led it to agree on a 1.2 million barrel-a-day crude oil output cut in November and a further 500,000 barrel-a-day cut to take place Feb. 1.

"For 2007, oil pricing is likely going to be stubbornly high, with the OPEC group looking like it will want to defend a $55 floor under prices," said Victor Shum, an analyst with Purvin & Gertz in Singapore. He projected crude futures would trade in the $60-65 a barrel range. "With ongoing geopolitical concerns such as Iran and Nigeria, the market will also tend to have buyers on the high side."

Slower economic growth in the U.S. and a production spurt from non-OPEC countries should keep prices below the 2006 average of roughly $66 a barrel, analysts say.

A survey of energy analysts showed U.S. crude oil stocks were expected to decline for a fifth straight week in data due Thursday from the U.S. Energy Information Administration. The data, which will cover the week ended Dec. 22, have been delayed until Thursday because of the three-day Christmas holiday.

Crude stocks were expected to show a draw of 1.32 million barrels on average, a Dow Jones Newswires survey said, while both distillate and gasoline stocks were predicted to rise.

Distillate stocks, which include heating oil and diesel fuel, are expected to increase by an average of 220,000 barrels while gasoline inventories were seen rising by an average of 590,000 barrels.

Heating oil futures fell 4.72 cents to $1.6010 a gallon, while natural gas prices dropped 11.2 to $6.187 a gallon.