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Oil broke through $ 61 on Friday to trade at its highest level since early November as arctic conditions blanketed the eastern United States, where users have begun to draw on stockpiles of gas and heating oil.

Oil broke through $ 61 on Friday to trade at its highest level since early November as arctic conditions blanketed the eastern United States, where users have begun to draw on stockpiles of gas and heating oil.

The rally was fueled by record highs for natural gas prices after a government report revealed U.S. inventories declined last week to sit 2 percent below 2004 levels. The draw was lower than forecast, but reflects the key role of gas in heating U.S. homes.

U.S. crude jumped 62 cents to $ 61.28, after adding $ 1.45 on Thursday, to extend a week-long rally of more than 7 percent. Natural gas futures, meanwhile, were setting new all-time records around $ 15.50 per million British thermal units.

‘Prices are up as forecasters predict the coldest December in five years and increase expectations of the likely usage of gas and heating oil over the next several days,’ said Dariusz Kowalczyk, senior investment strategist at CFC Securities.

Private forecaster Weather Derivatives said demand in the chilly Northeast, where 80 percent of the nation’s heating oil is consumed, will be 17 percent above normal until Dec. 14, up from a previous forecast of 12 percent. Weather watchers suggest unseasonably cold conditions could last almost until Christmas.

The Energy Information Administration said natural gas stockpiles declined by 59 billion cubic feet of gas last week as the mercury began to fall and heating cranked up, against a Reuters survey estimating a 63 billion cubic feet slide.

OPEC MEETS AS TREND TURNS

The rally sets the tone for a meeting of the Organisation of the Petroleum Exporting Countries on Monday in Kuwait, which will focus on production policy for the first half of 2006.

But several members of the cartel, which is already pumping crude near full capacity around 30 million barrels per day, have said a decision to change output is unlikely.

OPEC’s president said on Thursday the cartel did not need to cut production now, but would discuss rolling over a 2 million barrel per day offer of spare capacity at its meeting.

‘The rally comes despite OPEC signals that it will not reimpose caps on output,’ said CFC’s Kowalczyk.

‘Technical analysis now confirms the breakout from the downward sloping channel we’ve been in since August, with the bullish close above the key psychological threshold of $60 opening the way to further upside through December.’

Prices have gained a foothold over $ 60 after slipping earlier in the week on a U.S. government report revealing surpluses in crude and heating oil stockpiles of more than 10 percent.

Inventories consolidated through a long autumn as producers and refiners worked flat out to recover from a deadly string of summer hurricanes. But analysts fear a cold U.S. winter could quickly deplete robust reserves.

In anticipation, President George W. Bush has proposed a $ 2.2 billion budget to help low-income families cope with winter heating bills, and supports an additional $1 billion in extra funding for this year, Energy Secretary Sam Bodman said.

Source : today.reuters.com

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