Oil Hits 7-Week High Amid Supply Concerns

VIENNA -- Oil prices surged above $49 per barrel Tuesday -- their highest levels since the end of November -- amid plunging temperatures in the United States and fears of supply cuts.

Adding to supply concerns, the International Energy Agency revised demand for crude upward next year. The agency raised its estimated oil demand growth for 2005 by 100,000 barrels per day to 1.4 million -- and warned that while it expected "oil demand to slow from the torrid pace of 2004," it might be erring on the low side.

By afternoon in Europe, light sweet crude was up 89 cents to $49.27 in electronic trading on the New York Mercantile Exchange. Heating oil was up nearly 4 cents at $1.3890. Brent crude, meanwhile, was up 97 cents to $46 on the International Petroleum Exchange.

"There's a lot of bullish support for this market," said Esa Ramasamy, oil editorial manager at the energy reporting agency Platts.

Peter Gignoux, a London-based adviser for GDP Associates of New York, warned against putting too much weight on the IEA report, saying it was normally "subject to revision."

"It's the middle of January and cold weather," he said. "The forecast in the [United] States is below normal, and this will reawaken the old [heating oil] inventory argument."

Freezing temperatures hit parts of the United States last weekend, driving up demand in the world's largest heating-oil market for as long as a week.

OPEC ministers are scheduled to meet Jan. 30 to discuss whether additional production cuts may be necessary.

Oil demand usually falls in the second quarter of the year with the end of the northern winter. But Gignoux cautioned against an automatic assumption of lessened demand.

"It was gasoline that popped us up to those highs last year," he said, alluding to the spike in prices that peaked in late October at a record $55.17 per barrel.

OPEC agreed in December to cut production by 1 million barrels per day starting this month to bring output closer to its self-imposed target of 27 million barrels per day.

Gignoux said markets that have been particularly sensitive to Middle East unrest also might be reacting to news reports that the United States was planning to attack Iran.

Violence in Kuwait had already raised concern about the security of oil supplies from the emirate.

Repeated sabotage attacks on Iraq's northern pipeline infrastructure and power problems in the south have reduced exports, leading Iraq to hire an international company for advice on securing its pipelines.

Making up for some of those shortfalls, production has resumed at the 140,000 barrel-per-day Draugen field in Norway.