Oil surged above $98 per barrel Wednesday on expectations that U.S. oil stockpiles declined for a seventh consecutive week, Bloomberg News reported Wednesday. Oil rose $2.31 to $98.29 before pulling back slightly to $97.75, as traders attempted to gauge both U.S. demand and geopolitical factors affecting supply as the new year dawns.
Demand, Nigeria weigh
Independent energy trader Jim Dietz told BloggingStocks Wednesday that unrest in Nigeria is also putting energy traders' moods in a bullish frame of mind.
"We've got the political situation in Nigeria popping up again where 12 people were killed by militants and a near-unanimous consensus that U.S. stock piles will be lower, so that's more than enough to send this oil market higher," Dietz said. "I know it's not what consumers want to hear at the start of a new year, but oil and heating oil prices are heading higher, at least for the short-term."
Heating oil gained about 4 cents to $2.69, while unleaded gasoline rose 5 cents to $2.53 in Wednesday morning trading. Natural gas gained 17 cents to $7.65 per million BTUs.
Cold weather a factor
Dietz added that the first major cold snap to hit the northeast U.S. this winter is also "creating a floor for prices." More than 60% of the nation's heating is consumed in northeast states. Temperatures in New York on Thursday night are expected to drop to near 15 degrees.
"In addition to supply and geopolitical concerns, we have a typical seasonal effect taking place in the markets. Everybody realizes that heating oil use rises in the winter and particularly during a cold snap, so that's creating a floor for prices," Dietz said. "The overall tone is decidedly bid [buy oriented] and I expect that tone to continue for the rest of this week."
Dietz added that he is long with heating oil, natural gas, and gasoline contracts, both daily and monthly. He's also long with a monthly crude oil contract.
$100 in sight
Dietz added that oil should trade above $100 per barrel "later this week or next," if current short-term trends continue.
"Any other supply issues or if the cold snap in the east continues longer than a week will easily cause oil to trade above $100 per barrel," Dietz said.
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