The English are famous for talking about the weather, a predilection that seems to have spread to oil traders, judging by the volatile oil price movements this week.
Forecasts of colder weather in the US in the coming week helped push oil prices to six-week highs this week.
Consumption of winter heating fuels has thus far been lower than expected in the northern hemisphere because of the relatively mild winter in the US, Japan and Germany, the world’s top three consumers of heating oil.
This lower usage has a big impact on global oil consumption for this time of year as a cold snap across the three countries could boost demand by up to 2m barrels per day. That is why fears of a cold winter are an annual ritual for energy markets.
In the autumn, predictions of a cold winter helped send US heating oil futures to a record high of $1.60 per gallon, but by the beginning of January they had fallen 27 per cent to a near fourth-month low of $1.16 because the cold winter did not arrive. But forecasts for colder-than-average temperatures by the end of the month have seen US heating oil prices rebound to $1.33, following a near 7 cent gain this week. US natural gas prices also bounced about 8 per cent this week from four-months lows.
A similar pattern has occurred in the pricing of the gasoil contract on the International Petroleum Exchange, which reflects European heating oil prices.
The gasoil contract fell from its peak of $500 per tonne on October 12 to a four-month low of $350.20 per tonne at the end of December before rising above $400 again this week.
Gains in heating oil prices have underpinned the $2.50 rise in crude oil futures this week. If these prices hold, it will have a significant influence on oil ministers attending the meeting of the Organisation of the Petroleum Exporting Countries on January 30.
Analysts say Opec will be reluctant to cut production with Nymex WTI prices close to $48 per barrel and the Opec basket of crude prices above $41, a 21 per cent rise since the last Opec meeting when ministers decided to trim 1m b/d of output in excess of quotas.
Cold weather is one factor influencing Opec ministers, but they will also be taking account of supply disruptions. Attacks on Iraqi infrastructure have been on the rise, completely halting supplies from Iraq’s northern fields, while exports from the south of the country will be cut back from next month due to recent sabotage attempts.
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