Winter May Put a Fire Under Oil

Has oil peaked? Go ask Mother Nature.

Prices shot to record highs above $55 a barrel this year in response to threats of terrorism, hurricanes in Florida and political unrest in Nigeria, Venezuela and elsewhere. Winter weather in the U.S. could be the key to where crude oil goes next, some analysts said Wednesday.

That’s because heating oil is in short supply in this country. If this winter is especially cold in the East and the Midwest, the price of heating oil could rise sharply -- dragging the price of crude oil with it, these analysts said.

In fact, nervous traders sent crude prices up Wednesday in response to a 4.5% surge in heating oil prices on commodities markets.

Light, sweet crude oil for December delivery rose $1.49 to $48.86 a barrel on the New York Mercantile Exchange. Heating oil gained 6.1 cents to $1.403 a gallon. And gasoline futures moved up 5.13 cents to $1.285 a gallon.

“If we have a warm November and December, there won’t be any problem and crude prices will trend down,” said Philip Verleger Jr., an energy analyst and senior fellow at the Institute for International Economics in Washington. If there’s “a serious cold spell,” he added, crude oil could “climb precariously close to $60 a barrel.”

Other analysts expect crude prices to continue to fall. Three separate industry reports added to the energy markets’ uncertainty Wednesday, even about the shortage of heating oil that sparked the rally on Nymex.

In one, the International Energy Agency said rising global oil supplies, and signs that high energy costs have slowed economic growth around the world, suggested crude prices might have peaked.

“Barring any major unforeseen developments, oil markets should continue to ease heading into and out of the winter,” the Paris-based oil advisor to 26 industrialized nations said in its monthly report.

Noting the report, analyst Jacques Rousseau of investment firm Friedman Billings Ramsey & Co. said in a note to clients that he continued to forecast crude oil at $39 a barrel on average for next year and $35 in 2006.

The Energy Department, meanwhile, said supplies of distillate fuel -- which includes heating oil -- fell last week for the eighth week in a row. That countered analysts’ expectations of a rise and added to fears that heating-oil prices could soar during a severe winter.

Yet the department also said distillate production rose for the third straight week, indicating that supplies were being rebuilt. The energy industry’s trade group, the American Petroleum Institute, further confused the issue by contradicting the energy agency, saying that distillate supplies actually grew by 2.21 million barrels, or 2%, in the latest week.

Some big users of fuel, such as United Parcel Service Inc., are hopeful that oil prices have topped out.

“We don’t have a crystal ball on how much prices might fall back, but we do believe oil prices are likely to retreat over the short term,” said Norman Black, spokesman for the Atlanta-based shipping giant, which has 74,000 domestic trucks and other vehicles.

Overall, crude oil’s lofty prices reflect tight supplies and soaring demand. The cost rose sharply this year in response to real and perceived threats to supplies, including Hurricane Ivan, which disrupted production of oil and natural gas in the Gulf of Mexico.

Those operations are recovering, and experts generally say crude supplies -- helped by stepped-up production by the Organization of the Petroleum Exporting Countries -- are continuing to grow.

“This development will allow refiners ... an adequate supply of crude oil needed to significantly boost heating-oil inventories in time for the approaching winter heating season,” the Energy Department said in its weekly report.

Heating oil isn’t a concern to most Californians. But a shortage of heating oil elsewhere, and its effect of lifting crude-oil prices, could translate into higher pump prices at West Coast gasoline stations.

The average price for self-serve regular in California was $2.387 a gallon Wednesday, up 66.5 cents, or 39%, from a year ago, according to the Automobile Club of Southern California. Prices have edged lower in the last three weeks, and several stations in Southern California now sell gas below $2.20 a gallon.