Oil traders were divided on Tuesday, with cold weather nipping them to stock up but analysts warning them of gains in distillate inventories, to be released today.
In the end, the cold prevailed, and Brent futures for January delivery ended $1.41 higher in London at $39.25 a barrel. Light crude futures were 81 cents higher at $41.82 by the close in New York.
Weather forecasters said the bitter cold enveloping the US north-east and Midwest was due to continue for at least a week. Heating oil rose 2.36 cents to $1.2660.
But analysts expect an increase in US distillates inventories data today, as energy suppliers use seasonally lower prices to stock up ahead of colder weather in February. Some predicted the data to show the fourth straight week of increase, with the consensus settling around 1m extra barrels.
Although today's numbers will only indicate the level of stocks before this week's cold spell, a large increase might indicate lower demand next month. Observers also expect a build-up of crude and gasoline stocks.
In the long term, "it still appears that [Opec] will need to cut production to stave off a massive over-supply situation from developing," said Michael Rothman, chief energy strategist at Merrill Lynch, adding that WTI light crude prices might not bottom out until the reach mid-$30 range.
In the medium term, "Opec's decision to cut output, combined with some problems in Iraq and the North Sea, is putting a short-term floor on the market", said Kevin Norrish at Barclays Capital.
Oil bulls were also prodded along by confirmation of lower supplies. Yesterday, the country's energy minister said Qatar would follow Saudi Arabia and comply with cuts in over-production. It would cut supply by 40,000 barrels per day from January 1, he said.
In Norway, Statoil said production on its two North Sea fields would not restart until the year-end. The platforms, which pump 205,000 b/d, have been stalled since a gas leak on November 28.
Gold prices slid some $3.50 to $435.50-436.30 per troy ounce in late London trading and silver lost 12 cents to trade at $6.70-6.74, wiping out Monday's gains.
Traders sold on expectation of a positive statement on the economy from the US Federal Reserve, which would propel the dollar, the main alternative investment to gold.
While technical analysts, in particular at Barclays Capital, said that indicators were pointing to a fresh wave of buying, many metal strategists say prices will have to fall further before that happens.
"The failure to break through $440 highlights investors' indecision to build new long positions at current levels," said analysts at Dresdner Kleinwort Wasserstein in a note to clients./www.news.ft.com/