US snowstorm sparks demand for heating oil

A snowstorm in the north-eastern United States sparked a surge in demand for heating oil and pushed the price of crude to an eight-week high today.

Airports and roads were shut as 38 centimetres of snow fell in New York, while the states of Massachusetts, Rhode Island and New Jersey declared emergencies because of the blizzard.

The US is the world’s largest heating oil market, with 80% of it used by the north-east.

The cold snap contributed to a barrel of Brent crude for March delivery rising to 46.44 US dollars in London, representing its strongest level since November 30.

But it hit shares in British Airways, which is dependent on oil to power its fleet of aircraft and operates many flights to the north-east of the US.

BA shares were off 2% on a day when oil giants BP and Shell benefited from the rise in crude prices to record a 1% gain. Overall, the FTSE 100 Index was down 14.8 points at 4788.5.

Unrest in Nigeria – Africa’s largest oil exporter and the fifth-largest supplier of crude to the US – was also a trigger for the rise in oil prices.

Oil workers in Port Harcourt have threatened to go ahead with a strike unless two ex-pat oil executives blamed for cutting worker benefits heed their call to leave Nigeria.

The strike could cut Nigeria’s output by more than 500,000 barrels per day and shut down one of the country’s four oil refineries.

Oil prices have also been driven higher on concerns of supply disruptions in Iraq where militants have vowed to carry out attacks in the run-up to elections this month.

Barclays analyst Orrin Middleton said traders needed to buy oil to cover short positions and this had led to large volumes of heating oil futures changing hands.

But he added: “It’s not been helped by the fact that the US is buried under two feet of snow.”

Peter Nicol, head of oil and gas research at ABN Amro, said the strength of oil prices over the coming weeks would partly depend on how long the cold snap lasts in the US.

At the same time, the severity of any disruptions to production in Iraq during the elections would determine whether oil prices remain high.

“Given the lack of spare capacity the market will be prone to this type of (volatile) behaviour,” he said.

Oil cartel Opec is scheduled to meet to consider production levels in Vienna on January 30, the same day that Iraq is due to hold its elections.

Opec cut production by 1 million barrels a day from this month to bring output closer to its quota of 27 million barrels a day. This has resulted in a 20% gain in oil prices.

Mr Nicol did not expect an immediate change in quotas, but noted some nervousness among traders that Opec could talk about cutting back production from the second quarter.

In New York, the cost of US light crude also rose following the cold snap to 49.23 US dollars a barrel.