[KevO]

http://news.bbc.co.uk/1/hi/business/4498336.stm

Oil prices have briefly risen above $60 a barrel as snowstorms in the US North East boosted demand for heating oil.

US light crude touched $60.08 on Monday before slipping back to $59.96, while Brent crude rose 84 cents to $57.89.

Arctic weather in the US North East has pushed the price of heating oil, used to heat most homes, close to record levels.

The increase came despite a promise by oil cartel Opec to keep pumping petroleum at maximum capacity.

Meeting demand

Oil prices remain well below the historic peak of $70.85 reached in late August.

But with the cold weather set to continue they remain 40% above the level seen at the start of 2005.


Refineries will have to run hard to produce heating oil to meet demands
Victor Shum, Purvin & Gertz

Boston and New York have seen their first snow of the winter and further snowstorms are forecast for Monday along the eastern seaboard.

"The bulls are back in the market with just a little bit of cold weather," Victor Shum, from oil analysts Purvin & Gertz, told the Associated Press news agency.

"Refineries will have to run hard to produce heating oil to meet demands. This chews up more of the crude, which in turn drives up crude prices."

The pressure on oil means the 11-nation Opec producers' group is unlikely to scale back output when it meets in Kuwait on 12 December.

Production is already two million barrels a day beyond the 28 million barrel quota.

As well as reassuring markets that production would not flag, Opec president Sheikh Ahmed Fahd Al Ahmed Al Sabah said oil importing states had to build refinery capacity, a problem especially in the US.

[Leanan]

How's natural gas doing?

[FoxV]

not to bad, still sitting around all time highs of around $14

(from the oil and gas journal)

[MicroHydro]

Heating oil is still significantly below the post hurricane peaks, wait another month.

[basil_hayden]

Heating oil prices in the Northeast should not spike up as it may elsewhere due to the 2 million? barrel reserve started in 2000, that is unless the reserve is pilfered for diesel fuel.

[ubercynicmeister]

Mild Winter around NYMEX = no price rise;

Light snow Winter around NYMEX = light price rise (ie: small)

Heavy Snow Winter around NYMEX = heavy price rise( ie: large)

Blizzard Winter around NYMEX = Oh-My-Gawd-When-Will-this-stop type price rise;

Now, whoever said the NYMEX traders don't think about the Real Worold?

Mind you, for them the real world is only juuuuust outside the Nymex exchange.

[TITAN]

Link to current gas and oil prices (20 minute delay)

bloomberg/energy

[elroy]

And it's down to 59.09 again. It's just going up and down and up and down.. not getting much higher until something drastic happens.

[seldom_seen]

Saw this article linked on the front page.

IEA: World Oil Output Dn on Weather; Not Iran, Nigeria Woes
http://realtimenews.slb.com/news/story.cfm?storyid=631330

It's not that oil is a finite resource that is being used up rapidly with demand starting to outstrip supply. It's old man winter. Next month they'll probably come out and say production is down due to sun spots, or the moon cycle.

Reminds me of that song by Milli Vanilli "blame it on the rain, ooh oo oo ooh" Okay the song wasn't really by them, but the one they lip-synched.

[Ingenuity_Gap]

Of course it's the weather, and has nothing to do with Iran or Nigeria. Actualy, if you think it over, the Iran crisis would increase the oil supply, and nigerian terrorists would chalenge foreign oil workers to get more oil out of the ground.

IEA prognosticates oil supply like meteorologists forecast weather. Why should we worry then?

If mild weather in northern hemisphere affects oil price so negatively, imagine what will happen when we'll have a real winter.

[backstop]

Given that extreme weather events around Scotland have - according to the Air-sea Rescue Service - doubled in the last 10 years,

and have demonstrably affected both production and investment as the oil-ields head into decline,

and that climate destabilization is reportedly intensifying globally,

I'd like to nominate the headline

IEA : World Oil Output Down on Weather; Not Iran, Nigeria Woes

for a site-prize of the most ironic of the year ! [Vote next Christmas ?]


regards,

Backstop

[kevincarter]

Oil is up 10 $ from 50 to 60 usd again, and I'm reading that's due to "cold weather" in the US. I've searched the forum to find this graph, its 2004 but I guess it still works



Almost all of it goes to transportation / industrial and the amount used for heating is quite microscopic if compared to that. So I guess the weather argument does not work, unless I'm missing something.

[Pixie]

This graph is presumably for the entire year. If you just looked at January or February, then transportation would be a smaller chunk and heating a larger chunk of the total. This explains it a little bit. Plus market responses are always nonlinear. Traders react to the perception of a jump in demand, rather than an actual jump, so they tend to overreact. That's my guess.

[DantesPeak]

The lack of snow cover until just within the last week or so in the Boston-Washington DC metroplex has actually increased demand for gasoline (although lower prices this winter vs. last, plus the implied inefficiency of gasoline mixed with ethanol also contributes to more usage).

One could argue then that warm weather increase in gasoline demand offsets most - if not all - of the reduced demand for heating fuel. Keep in mind also that industrial customers (utilities) have converted more towards using natural gas vs. heavy heating oil over the last year, and this accounts for a good part in the drop in distillate demand.

[IslandCrow]

$this->bbcode_second_pass_quote('kevincarter', 'A')lmost all of it goes to transportation / industrial and the amount used for heating is quite microscopic if compared to that. So I guess the weather argument does not work, unless I'm missing something.

[MrBill]

$this->bbcode_second_pass_quote('kevincarter', 'O')il is up 10 $ from 50 to 60 usd again, and I'm reading that's due to "cold weather" in the US. I've searched the forum to find this graph, its 2004 but I guess it still works



Almost all of it goes to transportation / industrial and the amount used for heating is quite microscopic if compared to that. So I guess the weather argument does not work, unless I'm missing something.

[MrBill]

If I compare the crude oil complex including transport fuel demand (unleaded & diesel), and heating oil demand (that come from the same end of the barrel as diesel), which competes with natural gas in some markets, to electricity markets you can see the reason why weather can play a role.

In electricity generation you have your darks and sparks. That is coal (darks) and nat gas (sparks). The least cost formulation of electricity means that as a power buyer you will choose the combination of the two that delivers the lowest cost per watt.

However, in general coal is always on to meet base demand, and nat gas is used to meet peak demand as extra capacity can be brought online or turned off quickly. That means that base power prices seem to be more stable than peak prices that are more volatile.

To clarify this is assuming your grid is hooked up to power plants running on coal, nat gas, nuclear, hydro electric or whatever. If you're only running coal OR nat gas then that is different.

In the crude oil complex you have your base demand for transport fuel, heating oil and other industrial demand, and then you have your peak demand when temperatures drop and more heating oil is needed in the NE, for example, or mild weather leads to more driving. But the price swings tend to occur at the margins.

Just as an example, if total demand is 20 mbpd and it jumps to 21 mbpd like last week that extra demand has to be met from existing supplies already in storage or by imports but with a time lag.

Distillate demand (heating oil and diesel) jumped 7% last week over a year ago. That is a pretty significant jump. However, the price of crude has gone down. This is because traders, who are forward looking, see that existing supplies of heating oil and distillate stocks of 50.8 + 133.3 mio bbls are well above average or even 3-5 year averages.

This supply cushion is not only dampening short-term price swings, but as traders feel we have enough supply to last the winter they will slowly turn their attention to gasoline supply & demand and the summer driving season instead.

Ironically, the IEA forecasted lower world wide supply and higher OECD demand, while Chinese demand increased 9.3% in 2006, and US total demand jumped 5% in the past 4-weeks year on year, but prices have retreated from their highs of $60.80 last Friday to $56.60 yesterday. Even though yesterday's drawdown in nat gas was a near record -259 bcf. So I do not know what to make of this? Either the market is getting too complacent over the existing supply cushion or they are predicting much lower economic growth going forward? As it seems that winter demand has peaked, so until the hurricane season weather is not likely alone to support demand and prices?

Sanford C. Bernstein even predicts much lower prices.
$this->bbcode_second_pass_quote('', 'O')il will drop more than 30 percent to
$40 a barrel in March and may drop to $30 as rising prices for
storing crude lead to a `breaking point' that forces speculators
to sell, Sanford C. Bernstein & Co. said.
Oil will slide because greater investment in commodity
futures has driven the market into contango, according to analysts
led by London-based Neil McMahon. The phenomenon occurs when
futures prices rise above spot prices, often reflecting handling
or storage costs.
``As storage fills up, storage costs rise and the contango
widens,'' the analysts said in a February report. ``At some point,
investors will reallocate money away from the commodity funds,
causing futures prices to fall.''
Last month, New York-traded crude fell to $49.90 a barrel as
warmer-than-expected weather spread across the U.S. and fuel
inventories surged. Crude has since risen on a second production
cut by the Organization of Petroleum Exporting Countries and a
cold snap in the U.S., the world's largest energy consumer.

[aahala]

The percentage of oil going to heating is a much smaller slice of
consumption in the US than other parts of the world. My guess
the same is true for electrical production as well.

A portion of the rise or fall relative to weather may depend somewhat of where the weather is happening. If there's a
big cold spell in New York where oil is traded, which was the
case this year, then guess what? A person's view of the
future, in this case future prices, will be affected by one's
own experience.

[vision-master]

$this->bbcode_second_pass_quote('', 'J')uly 1, 2008
By The Canadian Press

The price of crude oil hit yet another record on the last day of a tumultuous first half, spurting past US$143 a barrel before ending lower on demand fears and a resilient U.S. dollar.

Crude has shot up nearly 50 per cent since the start of the year, in large part on the dollar’s troubles, and analysts expect that trend to remain intact as the second half of 2008 begins.

A U.S. government report lowering oil and gasoline demand estimates and a U.S. dollar hanging tough nullified investor concerns over supply, a fragile global economy and continued tensions in the Middle East.

"What this shows is that demand destruction in the U.S. is a lot larger than previously thought," said Phil Flynn, an energy analyst at Alaron Trading Corp. in Chicago. "There are more signs that demand is deteriorating."

Light, sweet crude for August delivery lost 21 cents to settle at $140 a barrel on the New York Mercantile Exchange. In early electronic trading, the contract hit a record $143.67.

The U.S. Energy Information Administration reported that oil usage in April was lower than previously estimated, falling to 4.2 per cent to 19.768 million barrels per day from 20.631 million. That was 3.9 per cent lower than in April 2007 and the lowest level for the month in six years.

The price of oil, which began 2008 at $96 a barrel, has risen in part on expectations of higher demand in China and other developing nations. But its almost relentless advance has also forced consumers and businesses to cut back the amount of gas and oil they use; it is also posing a threat to U.S. economic growth that could further slice into demand.

Retail gasoline, which has been tracking oil higher, reached a new national average in the United States of $4.086 a gallon, according to a survey of stations by AAA, the Oil Price Information Service and Wright Express. The previous record of $4.08 was reached June 16; since then, oil has moved past $140 and been setting new records of its own.

Gasoline’s surge higher has clearly affected consumer spending in the United States. The concern is that the inflationary effects of higher oil and gas will force consumers to cut back their spending on non-essentials further in the months ahead.

Meanwhile, as the Atlantic hurricane season enters its second month, many energy industry observers are taking bets on how a major storm in the Gulf of Mexico could affect already volatile commodity prices.

In 2005, three big hurricanes walloped the Texas-Louisiana coastline — home to key oil refineries and major offshore natural gas operations — and sent oil, natural gas and gasoline prices to then-record levels.

This year the U.S. National and Oceanic and Atmospheric Administration is predicting an above-average hurricane season, with up to 16 named storms and nine hurricanes.

With concern over supply already causing energy prices to soar, investors are keeping a very close eye on the weather forecast, said Barry Munro, an oil and gas analyst with Ernst & Young.

"Hurricane season plays a very direct impact on how speculators view natural gas prices. They effectively trade on weather," he said in an interview from Madrid, where industry heavyweights were meeting for the World Petroleum Congress.

Three years ago, hurricanes Katrina, Rita and Wilma disrupted supply enough to send natural gas to record highs. But by December, the market swung in the opposite direction, with an oversupply depressing prices.

Only in recent months have natural gas prices begun to recover, closing at US$13.35 per thousand cubic feet on the New York Mercantile Exchange on Monday after languishing at about half that a year ago.

"The speculation left the market as people really properly assessed what the real net supply disruption was," Munro said.

Lanny Pendill, an oil and gas analyst with Edward Jones, said the market is concerned about whether there will be enough natural gas in the system for the high-demand winter season.

"If you look at the natural gas inventories, at least in the U.S., right now they’re about in line with the five-year average numbers. But they’re down about 15 per cent relative to where we were last year," he said.

"We’re going to have to see some pretty decent refills over the coming months in order to get storage levels back towards that 3.4 (trillion cubic feet) that we’ll likely require for the winter months."

Geopolitical tensions, particularly surrounding Iran, also continue to boost oil prices. Traders were digesting reported comments from the commander of Iran’s Revolutionary Guards, who warned that if his country is attacked, Tehran would strike back by barraging Israel with missiles. In a report published Saturday in the conservative Jam-e-Jam newspaper, Gen. Mohammad Ali Jafari said that if Iran were provoked, it would also move to control a key oil passageway in the Gulf.

Iran is the world’s fourth-largest oil exporter and about 60 per cent of the world’s oil passes through the strategic Strait of Hormuz.