OIL prices rose more than 1 per cent on Thursday (Jan 9) as cold weather gripped parts of the United States and Europe, boosting winter fuel demand.
Brent crude futures settled up 76 US cents, or 1 per cent, at US$76.92 a barrel. US West Texas Intermediate (WTI) crude futures settled up 60 US cents, or 0.82 per cent, to US$73.92.
On Wednesday, both benchmarks fell more than 1 per cent.
Thursday’s rise is “definitely winter fuel demand kicking in here in the US”, said John Kilduff, partner at Again Capital in New York.
Parts of east Texas up to west Virginia were under a winter storm warning on Thursday, according to the National Weather Service, covering large swathes of Arkansas, Tennessee and Kentucky.
Ultra-low sulphur diesel futures were trading at around US$2.38 a gallon, their highest since Oct 8, according to data from LSEG.
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JP Morgan analysts estimate that for the United States, Europe and Japan, for every degree Fahrenheit, the temperature drops below its 10-year average, there is an increase of 113,000 barrels per day in demand for heating oil and propane “as teeth-chattering temperatures prompt consumers to crank up their heat”.
Extreme winter conditions can lead to disruptions in oil supplies as freezing temperatures may cause temporary freeze-offs and production cuts, JP Morgan analysts said.
“Right now it appears that the ice will stay north of refinery row along the US Gulf Coast, but power outages will be a concern as heavy rain and wind comes along for the ride,” TACenergy’s trading desk wrote on Thursday.
Meanwhile, the market structure in Brent futures is indicating that traders are becoming more concerned about supply tightening at the same time demand is increasing.
The premium of the front-month Brent contract over the six-month contract reached its widest since August on Wednesday. A widening of this backwardation, when futures for prompt delivery are higher than for later delivery, typically indicates that supply is declining or demand is increasing.
US President Joe Biden is expected to announce new sanctions targeting Russia’s economy this week, according to a US official. The administration is trying to bolster Ukraine’s war effort against Russia before president-elect Donald Trump takes office on Jan 20. A key target of sanctions so far has been Russia’s oil industry.
The US dollar strengthened further on Thursday.
Looking ahead, WTI crude oil is expected to oscillate within a range of US$67.55 to US$77.95 into February as the market awaits more clarity on Trump’s planned policies and fiscal stimulus from China, Oanda senior market analyst Kelvin Wong said. REUTERS
