SINGAPORE, Jan 27 - U.S. oil prices stayed solidly above $34 a barrel on Tuesday, underpinned by expectations frigid weather in the United States had kept heating oil demand high and had reduced already tight supplies. U.S. light crude on the New York Mercantile Exchange shaved four cents to $34.43 a barrel. London's Brent crude edged three cents higher to $30.48 a barrel. Oil prices have been underpinned for weeks by dwindling stocks in the United States, which uses some 20 million barrels of oil a day, about a quarter of global demand. Prices shot up last week to more than $36 a barrel, the highest level since just before the U.S.-led invasion of Iraq last March.
Data this week is expected to show that U.S. crude stocks, near 28-year lows, fell again last week as cold weather cranked up demand for heating. Analysts surveyed by said they estimated the government data would show crude stocks at the end of last week were two million barrels below the end of the previous week. They also estimated distillate stocks, which includes heating oil, would drop by 3.5 million barrels. Last week's figures showed crude stocks at 265 million barrels, more than 33 million barrels below the five-year average. At such levels, refineries could face supply problems if there was a sudden surge in demand, the U.S. National Petroleum Council has said. Despite the expected fall in U.S. oil supplies, some traders said this week's data could have limited impact on oil prices. "The weather premium on heating fuel and natural gas futures will start peeling off as the peak seems to have already passed," an oil trader in Tokyo said. He declined to be identified. Temperatures this week in the U.S. Northeast, the world's biggest regional guzzler of heating oil, have dropped as much as 12 degrees Fahrenheit below normal. However, forecasters have moderated their temperature expectations for the rest of the week and next week, easing oil market worries about potential oil demand, although they still call for a bitter cold. If the worst of the winter temperatures have passed in the United States, oil dealers will gradually turn more of their attention to oil cartel OPEC, which is due to review its production policy at a meeting in Algiers on February 10. The group has kept a tight rein on production despite calls from consumers, who suffered the highest average prices in 2003 for more than two decades, to loosen the taps. OPEC kingpin Saudi Arabia offered some soothing words late last week by saying the kingdom would aim for a central $25 a barrel in the OPEC crude reference price. Saudi Arabia's oil minister, Ali al-Naimi, had said last year high oil prices were justified because of the weakness in the dollar, the currency used in oil trading. OPEC's reference price currently stands at more than $30, but the cartel has stated it wants to try to keep prices between $22 and $28.
Fearing a drop in demand in the second quarter as rising temperatures reduce demand for heating, some OPEC members want to cut production in the next few months to keep prices buoyant. But analysts say that may prove politically difficult if prices remain above $30, a level some economists argue can stifle economic growth. It may be best to leave official production of 24.5 million barrels per day unchanged for now and review the policy again when OPEC meets on March 31, an OPEC delegate for Indonesia, which holds the rolling presidency of the cartel, said last week.//