Oil prices flirted with $46 a barrel on Tuesday, firming on forecasts of a cold spell bearing down on the US Northeast heating oil market and continued supply problems from big global producers. US crude futures settled up 35 cents to $45.68 a barrel after hitting a high of $46.15 in the middle of the open-call session. London Brent was 23 cents higher at $43.15 a barrel.
The gains came after a round of profit-taking late Monday knocked US oil prices off a near six-week high of $47.30.
"Overall, it's still bullish. It's winter, we have problems in the North Sea. Opec is also cutting supplies," said Tony Nunan, a manager at Mitsubishi Corp's international petroleum business.
Production problems in Iraq, Nigeria, the US Gulf of Mexico and Norway's sector of the North Sea have combined to remove around 1.1 million barrels per day from the 82 million bpd world market.
The shutdowns have accumulated at a time when Opec members have just implemented a supply cut of 1 million bpd and fears are lingering over lean heating fuel stocks for the Northern Hemisphere winter.
The eastern United States should experience a colder February than normal, with the first sustained chill in the Northeast starting this weekend, private forecaster EarthSat said in a long-range forecast.
That will boost demand for heating oil, the primary winter fuel for the region, potentially straining stockpiles that are 9 percent below year-ago levels.
Unusually mild weather had helped inventories narrow that deficit in the week to January 7, with distillates stocks - which include heating oil and diesel - expected to have risen over the period, a Reuters poll showed.
Crude stockpiles were expected to have dipped by 1.7 million barrels, but should remain higher than last year.
Prices jumped on Monday after Iraqi oil officials said sabotage ahead of the country's January 30 elections had paralysed oil operations in the north of the country, forcing a suspension in refining while export flows remained idle.
Iraq's northern pipeline network has been a constant target of attacks by saboteurs while its larger southern line has been hit only a handful of times since the war nearly two years ago.
"The potential for chaos in the run-up to elections, or after, could have a significant impact on our forecast that Iraq's production should average almost 2.4 million bpd in 2005," Deutsche Bank said in a report.
A combined 500,000 bpd was shut in the US Gulf of Mexico and the North Sea, the result of technical problems and of stormy weather over the last few months. Some 100,000 bpd of Nigerian production is shut because of community disputes.
Supply worries were sharpened by news that top producer Saudi Arabia deepened its supply cutbacks to key customers in Japan and South Korea for February.
The Organisation of Petroleum Exporting Countries is scheduled to meet this month to discuss second-quarter production policy, with some members saying another cut might be necessary if US crude oil falls below $40 a barrel, effectively setting a higher bar for defending prices.
Venezuelan Oil Minister Rafael Ramirez said Tuesday Opec could cut oil production at the meeting, scheduled for January 30 in Vienna.
The US Energy Information Administration said Tuesday US oil demand in the first quarter of 2005 would average 20.88 million bpd, up from the agency's estimate last month of 20.77 million bpd.
Separately, EIA put world oil demand for the first quarter at 84.5 million bpd, down from the agency's previous short-term forecast of 84.6 million bpd.
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