Oil prices held steady near 7-week lows on Friday on forecasts for colder-than-normal weather in the US Northeast. US crude rose four cents to $47.46 a barrel after a slide that has knocked 14 percent off the October 25 all-time peak of $55.67. London Brent gained six cents to $43.08 a barrel. An exodus by speculative funds cashing in profits to seek returns in equity and bond markets took another bite out of prices this week, prompting dealers to question whether this year's explosive price rally had run its course.
Crude is still up nearly 50 percent from the start of the year, a rise fuelled by the fastest demand growth in a generation and worries about a lack of spare world production capacity.
With peak northern hemisphere winter demand still to come, many analysts are reluctant to call an end to $50-plus oil.
"We do think the worst is over, but a terrorist attack or major outage could see the price briefly revisit the October highs," said David Thurtell, commodity strategist at Commonwealth Bank of Australia. "And the weather in the northern hemisphere will be an important driver of prices."
Heating oil supplies in major markets the United States, Germany and Japan are much lower than normal for the time of year, spurring fears of a supply squeeze if winter hits early or hard.
The US Northeast can expect a blast of below normal weather at the weekend, said forecaster Meteorlogix.
The region that depends largely on heating oil for winter fuel is expected to see temperatures running as much as 10-18 degrees Fahrenheit, 5-9 degrees centigrade, below normal on Friday and Saturday before moderating early next week.
US heating oil inventories are already 17 percent below 2003 levels, government data showed this week.
In Germany, households and businesses have only stocked about 60 percent of their heating oil storage capacity, the lowest early November level in at least 20 years.
But stockpiles are expected to build as refiners crank up operations following seasonal maintenance. US plants boosted processing rates by more than three percentage points last week.
"With US and European refineries back from maintenance, product stocks will build, putting pressure on crude oil prices," Thurtell said in a report.
US crude oil inventories have already been topped up near normal for the time of year thanks to the heftiest Opec output in 25 years.
Speculative hedge funds also have fled oil markets this month on signs that high energy costs are dulling economic growth and chipping away at incremental fuel demand.
Japan, the world's third-biggest oil consumer, said on Friday that economic growth almost ground to a halt in the July-September quarter.
Growth slumped to just 0.1 percent above the previous quarter, when economists were forecasting a 0.5 percent rise.
Uncertainty over some Opec supplies has left dealers edgy, with a Nigerian umbrella union set to go ahead with a general strike over higher domestic fuel prices from next Tuesday despite a court order not to proceed.
The action, the fourth this year, should not affect the country's over two million barrels per day exports unless it drags on longer than a week, industry unions said this week.
The ongoing battle between US troops and rebels in the Iraqi city of Falluja has underlined worries about the country's exports.
But Baghdad has managed to quickly repair frequent attacks on its northern export pipeline and deliveries on Friday were running near capacity of about 500,000 barrels a day. Exports from Iraq's southern Gulf ports are stable near 1.6 million bpd.
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