Nymex Crude Buoyed By Cold, Dollar Concern

NEW YORK Nov 19, 2007 (Dow Jones Newswires)

Crude oil futures finished higher in quiet trading Monday, supported by colder-than-normal temperatures in the U.S. Northeast and OPEC-inspired uncertainty about the dollar, whose weakness has helped crude to recent records.

Crude's ability to stay at near its record high, despite failing to rise to $100 last week as the December contract expired, has many analysts predicting prices are still able to reach triple figures this year, especially if colder weather in the Northern Hemisphere can drive demand.

Light, sweet crude for January delivery on the New York Mercantile Exchange rose 80 cents, or 0.9%, to settle at $94.64 a barrel. Prices rose as high as $95.15 in early screen trading. Brent crude on the ICE futures exchange rose 66 cents to settle at $92.28 a barrel.

The futures spent most of the trading session vacillating between positive and negative before rising nearly $1 a barrel in the last half-hour before settlement.

Temperatures in the U.S. Northeast, the world's biggest heating oil market, are forecast to be lower than normal going into December, according to both the six-to-10 day and eight-to-14 day forecasts on the National Weather Service's Web site. Temperatures in New York were below average Monday.

Winter heating fuel and power demand in the U.S., Europe and Asia is usually a big driver of crude oil demand in the fourth quarter. While most forecasters are calling for a warmer-than-normal winter, continued cold weather in the lead-up will support prices.

Oil traders are also keeping a close eye on the dollar, and calls from some Organization of Petroleum Exporting Countries leaders to price oil in other currencies led to a reluctance to sell futures, despite currency traders leaving the dollar steady. Nymex crude's rise to a record intraday high of $98.62 a barrel on Nov. 7 has been in part because of dollar weakness, which makes the commodity cheaper in other countries.

"A lot of the strength seems to be coming from the colder weather, and the OPEC (heads of state) meeting at the weekend" is also helping, said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

Organization of Petroleum Exporting Countries' heads of state met over the weekend, refusing to discuss any future production increases to ease higher prices.

Also, while there was no mention in the official communique to the dollar, Venezuela and Iran have pushed OPEC to discuss pricing oil in a basket of currencies, rather than just in the dollar, and sought to include a mention of the weakening dollar in the communique.

"A concerted bid to change the OPEC (currency) peg could leave Saudi Arabia in direct conflict with extreme OPEC factions," Mike Fitzpatrick, vice president of risk management at MF Global in New York, said in a research note.

While oil traders were focused closely on the OPEC comments, currency markets didn't seem too worried.

"Saudi Arabia is the key player here, not Venezuela, Iran," said Marc Chandler, global head of foreign exchange at Brown Brothers Harriman. "The Saudis have been very clear. They have no plans to change foreign exchange policies."

Traders will look to Wednesday's weekly Department of Energy report on U.S. inventories to gain more information on which way prices are likely to head. Crude oil inventories are expected to have risen by 800,000 barrels in the data, which is for last week, according to the mean forecast in a Dow Jones Newswires survey of 10 analysts.

Distillate stockpiles, which include heating oil and diesel fuel, are seen falling by 400,000 barrels and gasoline inventories are seen growing by 700,000 barrels. Refinery use is expected to grow by 0.4 percentage point to 88.1% of capacity.

Large speculators, such as hedge funds and investment banks, slashed their net bets on a gain in futures prices in Nymex crude to the lowest level since August in the week ended Nov. 13, according to the U.S. Commodity Futures Trading Commission.

The speculators cut their net long position in futures to 27,566 from 105,816 a week earlier, according to the CFTC's weekly Commitments of Traders report, released Friday. The net long position is the difference between the number of short positions, or bets on a fall.

Analysts were divided on the implications for crude markets. While some saw a distinct change in sentiment from the large speculators that could drive prices lower, others thought it left more room for them to come back on the long side and push prices higher.

"Combined with the drop in open interest from last week's December contract expiration, (the cut in net longs) provides the market with ample room for the re-establishment of long positions going forward," Addison Armstrong, an analyst at TFS Energy Futures in Stamford, Conn. said in a research note. Open interest, or the number of futures contracts not expired

or closed, declined Wednesday and Thursday ahead of Friday's expiration of December crude. Front-month December reformulated gasoline blendstock, or RBOB, rose 62 points, or 0.3%, to $2.3816 a gallon. December heating oil rose 1.71 cents, or 0.7%, to $2.6042 a gallon.

Copyright (c) 2007 Dow Jones & Company, Inc.