Oil rallies after US data shows spike in product demand

[LONDON] Oil futures rallied back above US$32 a barrel on Wednesday, after US data showed a jump in weekly demand for products such as heating oil when a cold front hit the country, although analysts said the rise in prices may not last long.

Data from the US Energy Information Administration showed inventories of distillates such as heating oil fell by more than 4 million barrels, trumping expectations for a rise of nearly 2 million.

"The draw in distillate stocks is bullish, but we know there was cold weather in the United States in the last week, so I would say the reason behind the draw has something to do with the cold winter weather and, as such, the impact should be short-lived," Tamas Varga of PVM Oil Associates said.

The data also showed US crude oil stocks hit their highest on record in the latest week, due largely to increases on the US Gulf Coast, a major oil hub.

Brent crude was last up 10 cents at US$31.90 a barrel by 1600 GMT, having hit a session low of US$30.83.

US crude futures were down 21 cents at US$31.24 a barrel, having previously fallen to a session low of US$30.14.

Partly fuelling the rally was relief that the build in inventories shown by the EIA fell short of that reported by the American Petroleum Institute the day before.

"The market picked its head back up after the report came out. It seems as if it's gaining some support from the crude number because the build is smaller than the API report," Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut, said.

Oil has risen from last week's 2003 lows after speculators unwound some of the record-high bearish positions they had racked up over the last six months.

"There is dove-tailing of moves in oil with moves in equities that is happening and of course the equity markets, we've seen, are so prone to risk aversion," BNP Paribas global head of commodity strategy Harry Tchilinguirian said.

"Right now oil is buffeted between short-covering, cross-asset correlations and its own weak fundamentals."

Oil prices have fallen nearly 16 per cent in January, bringing total losses since the start of the decline in mid-2014 to 77 per cent.

REUTERS