Oil recovers from 2010 lows to $80 a barrel

Oil edged up toward $80 a barrel on Thursday as traders moved to cover short positions, taking advantage of a drop to 2010 lows the previous day on surprise gains in U.S. distillates and crude stocks.

Crude inventories in the United States climbed by a larger-than-expected 3.7 million barrels last week, while distillates posted an increase of 1.4 million barrels, against expectations for a decline, the U.S. government Energy Information Administration (EIA) said on Wednesday.

U.S. crude for February rose 25 cents to $79.90 a barrel at 12:31 a.m. EST after trading as low as $78.37 on Wednesday, the lowest intraday price this year, following the release of the EIA stockpile data. Prices had reached a 15-month intraday high of $83.95 a barrel on Monday.

London Brent crude for February gained 28 cents to $78.59 a barrel, after having touched a 2010 low of $77.04 on Wednesday.

“I could not find any bullish news from a fundamental point of view, but I suppose a lot of short covers came in,” said Ken Hasegawa, a commodity derivatives manager at brokerage Newedge in Japan.

“Prices are moving in a $75-$85 range. It was very good timing to buy back the market,” he added, referring to the price fall after the inventory figures were published.

Open interest across the Brent crude futures curve climbed to a record of almost 818,000 lots on January 12, the ICE exchange showed on its website. (here)

That indicated participants were holding an unusually high number of open price bets. The price drop to the year’s lows provided an opportunity to close some of those positions before the expiry of the February contract later on Thursday.

HEATING FUEL STOCKS

U.S. oil stockpiles have bulged over the past 18 months as the economic crisis has cut energy demand. Recent icy weather over much of the world’s largest energy consuming nation drained heating oil stocks by 1.1 million barrels in the week ended January 8, the EIA reported.

But that was insufficient to trigger a drop for the whole distillates category which groups heating oil with diesel and jet fuel. Overall U.S. distillates stocks had dropped in the previous four weeks.

Forecasts now show higher-than-normal temperatures in the U.S. Northeast over the coming week, signaling heating fuel demand will remain lower than normal.

U.S. distillates demand even failed to show a significant pick-up from year-earlier levels over the past four weeks, posting a drop of 4 percent.

However, unseasonably cold weather conditions across Europe will hold heating demand “well above average” levels, forecaster Telvent DTN said, adding that an unusual cold pattern was set to prevail throughout Western Europe this week.

Gas oil futures on the ICE exchange rose more than $6 a metric ton to surpass $642 on Thursday. Prices had tumbled to below $631 a day earlier, their lowest intraday price since December 28.

Investors have looked to wider economic data in recent months for signs of recovery and a potential rebound in energy demand.

Two top Federal Reserve policy-makers said on Wednesday the U.S. central bank will need to be certain the economic recovery is firmly in place before tightening its monetary policy stance.

The U.S. economy cut 85,000 jobs in December and the unemployment rate stayed high at 10 percent, but one Fed official expected jobs growth within a few months.

“We need to see a strong recovery of the economy in order to surpass $85,” Hasegawa said. “We will probably see the market trading quietly and it will not be moved outside the current range until after April.”

Source: Reuters