Crude oil rose to the highest close in more than 14 months on speculation that cold weather in the northern U.S. bolstered fuel demand and reduced stockpiles.

Temperatures in the U.S. Northeast, the area responsible for about
four-fifths of the country’s heating oil use, are forecast to remain
below normal through Jan. 14.

U.S. supplies of distillate fuel, a category that includes heating oil
and diesel, probably fell for a fourth week, according to a Bloomberg
News survey.

“It’s a foregone conclusion that we will soon break through last year’s
high of $82,” said Peter Beutel, president of trading adviser Cameron
Hanover Inc. in New Canaan, Connecticut. “We’re getting some of the
coldest weather in years and that’s bound to increase demand.”

Crude oil for February delivery rose 26 cents, or 0.3 percent, to
$81.77 a barrel on the New York Mercantile Exchange, the highest
settlement since Oct. 9, 2008. Futures touched $82 during the session,
equaling the intraday high on Oct. 21. Prices are up 68 percent in the
past year.

Heating oil for February delivery increased 0.36 cent to $2.1941 a gallon in New York, the highest close since Oct. 20, 2008.

The eastern half of the U.S. is facing its coldest winter since 1982,
AccuWeather said on its Web site. Arctic air from Canada is spreading
south. By Jan. 9, New York and Boston may have lows of minus 10 degrees
Celsius (14 degrees Fahrenheit).

“We had a great run-up from just under $70 to just above $80 in a short
amount of time and the weather is responsible for a lot it,” said Bill
O’Grady, chief market strategist at Confluence Investment Management in
St. Louis.

Oil has climbed nine days, the longest upward stretch since July.
Prices have surged 19 percent since touching $68.59 on Dec. 14.

Inventory Forecast

An Energy Department report tomorrow is forecast to report that
stockpiles of distillate fuel dropped 1.85 million barrels last week,
based on the median estimate of 16 analysts surveyed by Bloomberg.

“We’ve had a monumental run from last month’s lows and it’s been mostly
driven by the weather and the impact that will have on distillate
supplies,” said Richard Ilczyszyn, a senior market strategist with
Lind-Waldock & Co. in Chicago. “The major focus tomorrow will be
the distillate number, in particular heating oil.”

U.S. heating oil stockpiles have fallen for six weeks to 44.4 million
barrels, the longest decline since April 2008, an Energy Department
report showed Dec. 30.

Stockpiles of crude oil probably declined 1 million barrels from 326
million the prior week, according to the survey. Fifteen analysts gave
crude oil projections.

The industry-funded American Petroleum Institute will publish its supply data at 4:30 p.m. today.

Cold Weather

“A lot of the rally has to do with the cold weather we are seeing in
the U.S., Europe, as well as in Asia,” Mike Wittner, head of oil market
research at Societe Generale SA in London, said on Bloomberg Television
today. “We could go up a couple of dollars from here, but that would be
about it.”

Beijing temperatures were forecast to drop as low as minus 16 degrees
Celsius later today, according to the China Meteorological
Administration. Northern China may have 50-year record-low
temperatures, China Central Television reported.

Temperatures will not rise above minus 6 Celsius in Hamburg in northern
Germany tomorrow, Uwe Kirsche, the spokesman for Germany’s national
weather service, said by phone. The cold weather is expected to go on
for two weeks, he said.

Ample Stockpiles

“We are set to move to the high-to-mid $70s soon,” said Stephen Schork,
president of consultant Schork Group Inc. in Villanova, Pennsylvania.
“We still have a lot of surplus heating oil, crude oil and gasoline on
hand. There’s been talk of increasing consumption throughout 2009 but
I’ve yet to see this phantom demand.”

U.S. supplies of crude oil, gasoline and distillate fuel in the week
ended Dec. 25 were above the five-year average for the period,
according to the Energy Department. Total U.S. daily fuel demand
averaged 19.1 million barrels in the four weeks ended Dec. 25, down 0.2
percent from a year earlier, the department said on Dec. 30.

“Refineries are still shutting shop,” Schork said. “It’s still
difficult for refiners to make money, which tells me oil is too high.”

Valero Closing

Valero Energy Corp., the largest U.S. refiner, said on Nov. 20 that it
would close its Delaware City, Delaware, plant because of mounting
losses after the recession eroded demand for gasoline and diesel.
Philadelphia-based Sunoco Inc. idled its Eagle Point refinery in
Westville, New Jersey, in November.

Brent crude oil for February settlement climbed 47 cents, or 0.6
percent, to end the session at $80.59 a barrel on the London-based ICE
Futures Europe exchange. It was the highest close since Oct. 9, 2008.

Oil volume in electronic trading on the Nymex was 417,876 contracts as
of 3:43 p.m. in New York. Volume totaled 492,476 contracts yesterday,
14 percent below the average of the past three months. Open interest
was 1.24 million contracts.

Source: Bloomberg

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