OIL prices climbed yesterday as forecasts for blustery weather in the United States raised expectations that demand for energy will surge in the coming days.
A declining dollar and rising political tensions in the Middle East contributed to the advance, apparently outweighing worries that a weakening US economy could curb oil demand.
Light, sweet crude for February delivery rose US$1.51 to settle at US$94.20 a barrel on the New York Mercantile Exchange. In London, Brent crude gained US$1.85 to finish at US$92.92 a barrel on the ICE Futures exchange.
"The main thrust to the upside is pretty clearly weather driven," said Citigroup Global Markets energy analyst Tim Evans. "That has the natural gas market extending last week's gains and making heating oil the leader on the upside of the petroleum complex."
Heating oil futures added more than 5 US cents to settle at US$2.5892 a gallon, while natural gas futures gained 14.3 US cents to US$8.353 per 1,000 cubic feet.
The National Weather Service is calling for below-normal temperatures across most of the US over the next two weeks. The Midwest is the heart of the natural gas market, while the northeastern United States is a major consumer of heating oil.
The falling dollar also helped to buoy oil prices yesterday, said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. The euro rose near its all-time high against the dollar on speculation that the Federal Reserve will cut interest rates again.
Lower rates tend to weaken the dollar, giving investors reason to buy oil. Crude futures offer a hedge against a declining dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the currency is falling.
Meanwhile, President George W. Bush on Sunday called Iran "the world's leading state sponsor of terror" while on a visit to Abu Dhabi. Bush said Iran funds militant groups such as Hamas, Hezbollah and Islamic Jihad and sends arms to the Taliban in Afghanistan and Shiite extremists in Iraq. Iran's foreign minister responded by calling for an end to what he called US meddling.
Any comments by world leaders about the Middle East can add to the market's nervousness. Iran is the second largest producer in the Organization of Petroleum Exporting Countries, which supplies 40 percent of the world's daily oil needs _ and tension between any OPEC member and the West usually raises concerns about the flow of oil supplies.
Continued shelling by Turkey at suspected Kurdish rebel positions in northern Iraq also fed worries about a supply disruption.
But uneasiness about a possible US recession suggested that the price rally could be short lived.
"The threat of an economic downturn in the US continues to weigh on the crude oil market," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
In a similar vein, Vienna's PVM Oil Associates said "increasingly dire" economic data could limit gains, noting predictions by Goldman Sachs of the US economy falling into recession this year; a report that US growth already declined slightly in the fourth quarter of the past year, and a warning from American Express of increasing credit card defaults.