Rallying oil prices climbed to within a dollar of $50 a barrel early on Monday as a blizzard enveloped the US Northeast, boosting demand for heating oil. Uncertainty ahead of Sunday's Iraqi elections and Opec meeting also kept prices near an eight-week high, encouraging speculative hedge funds to gradually rebuild long positions. US light crude rose 59 cents to $49.12 a barrel, building on Friday's $1.22 rally and pushing the market toward the $50 mark last touched on November 30.
A blizzard blanketing large parts of the Northeast, the biggest regional heating oil market in the world, has kept temperatures well below the seasonal average, driving homeowners to fire up their furnaces.
The weather is expected to return to near-normal conditions by Tuesday, forecasters Meteorlogix said on Friday.
Traders worry that the current freeze may drain stockpiles that remain below year-ago levels, despite an unusually warm first half of the northern hemisphere winter.
Heating oil prices climbed 1.4 percent to a one-month high of $1.4025 a gallon.
"It's a bit of everything - cold weather, Iraq, Opec - that's driving up the market," said John Brady, a broker at ABN Amro in New York.
Oil dealers fear that sabotage on Iraq's oil infrastructure may escalate in the days leading up to or following the election on January 30, the same day that the Organisation of the Petroleum Exporting Countries meets to discuss output policy.
Any additional disruption to Iraqi exports would add to pressure on the global supply chain, which is still grappling with outages of nearly 500,000 barrels per day (bpd) from Nigeria, Norway's North Sea, the US Gulf of Mexico and Canada.
Opec said on Friday that world stocks were rising this winter, typically a period when inventories decline, but the build was limited by stronger-than-expected demand growth.
Some Opec members are worried that a big build over the winter could send prices tumbling in the spring, when seasonal demand ebbs, but analysts say the cartel will be reluctant to make any new cuts with oil prices near $50 a barrel.
"(Given) current market developments, Opec should roll over the current quota," Indonesian Mines and Energy Minister Purnomo Yusgiantoro said on Monday.
Iranian Oil Minister Bijan Zanganeh told reporters the market may be oversupplied by some 1 million bpd, but "this does not mean we're going to cut (production)".
Members agreed to wipe away one million bpd of excess output from January 1, setting the production ceiling at 27 million bpd.
Strong demand and supply worries have encouraged hedge funds to slowly rebuild their positions in the oil market, nearly doubling their holdings to a still modest 15,925 lots net long crude oil last week, US regulators said on Friday.
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