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Oil Prices Fall as Winter Premium Melts Away

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Anaylsts said the unusually cold weather supported prices.

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Editor's Note: This article was written by Darrell Delamaide of OilPrice.com, which offers free information and analysis on energy and commodities. The site has sections devoted to fossil fuels, alternative energy, metals, oil prices, and geopolitics.


Crude oil futures fell for five straight sessions as warmer weather in the US dispelled forecasts of unusually low temperatures and allowed concerns about demand to come to the fore. The price for Nymex's West Texas crude fell about 6% during the week, starting at nearly $83 and finishing at $78.

Analysts said that the unusually cold weather had supported prices with a "winter premium," as added heating demand compensated for lower demand in transportation due to slow economic recovery.

Even a report early in the week that China's energy imports had registered a big jump in December failed to help, as it was quickly followed by moves at the Chinese central bank to tighten credit and slow down economic growth.

Further bearish news came on Wednesday with the report that US inventories of crude oil had risen by 3.7 million tons in the week, three times more than expected.

Then the coup de grace came on Friday as the International Energy Agency failed to raise its forecasts for global oil demand in its monthly oil report, saying that the cold weather wasn't sufficient to increase demand projections.

"Oil demand recovery in the OECD will likely remain sluggish, despite a bout of recent cold weather," the agency said.

Even so, US industrial production figures for January posted their sixth straight increase on Friday, coming in slightly higher than expectations at 0.6%, and this helped trim some of the losses on the crude contract.

Some analysts found comfort in the fact that the decline in crude prices was not greater, seeing this as a sign of resilience. Goldman Sachs reiterated its forecast that West Texas crude would average $90 this year and rise to an average $110 in 2011. The bank said demand from emerging economies would make up for the sluggishness in the industrial countries.

The IEA echoed this sentiment in its report. "Growth is driven by non-OECD countries, most notably in Asia," the IEA said.

A move by the US Commodity Futures Trading Commission to impose position limits had no impact on trading. The proposed limits are generous enough that only the very biggest traders will have to pay attention to them, analysts said.

Heating oil and gasoline prices trended down with crude. Natural gas benefited from bargain hunters on Friday to claw back some of its losses for the week, ending up for the day.

Originally published at: http://www.oilprice.com/article-oil-prices-fall-as-winter-premium-melts-away.html.
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