Oil prices closed above US$45/barrel as an early spurt of buying created momentum forced investors anticipating lower prices to cover their bets. Light sweet crude for February delivery rose to US$45.56 a barrel on the New York Mercantile Exchange. In London, Brent crude for February delivery rose to US$42.85 per barrel on the International Petroleum Exchange.
However, this hike was not due to a single spark, but can be attributed to many reasons:
The persistent skittishness in the market - stemming from strong demand, tight supplies and fears about instability in OPEC countries. While oil prices are well below the US$55 a barrel, traders remain wary about tight heating oil supplies in the United States and about possible supply disruptions in Iraq and terrorist activity in Saudi Arabia, the world's top supplier of crude oil. Markets were rattled throughout 2004 by stronger-than-expected demand and persistent supply fears and unrest in key producers Saudi Arabia, Russia, Venezuela, Nigeria and Iraq. U.S. and Norwegian producers have also been working to restore production caused by leaks and storms. Currently, heating oil inventories are on the low side, but soon the weather is expected to get colder.
Just a day before, oil prices as well as heating oil prices fell after a U.S. government report showed larger-than-expected increases in winter fuel supplies. The U.S. Energy Department's statistical arm reported that supplies of distillate fuel, which include heating oil and diesel, grew by 2 million barrels last week to 121.1 million barrels. The increase was much higher than expected, though it still leaves inventories 11% below last year's levels.