Oil held steady at above $62 a barrel for a third day on Thursday as forecasts for weaker fuel demand during mild weekend weather took the sting out of an unexpected drop in crude stocks in the world's top consumer.
US crude for January delivery rose 13 cents to $62.32 a barrel, reversing part of the previous day's 24-cent slide. Brent crude was up 17 cents at $63.24. Oil got little lift from weekly data showing commercial crude stocks in the United States fell by 1.1 million barrels last week against expectations for an increase in supplies.
Distillate inventories, including heating oil, declined by 400,000 barrels, roughly in line with expectations. Prices broke just above their two-month $58-$62 channel one week ago, but have since failed to rally beyond $64 a barrel.
"With WTI prices having recently moved back to the top end of their two-month range, this report provided few fireworks for the market," said First Energy Capital analyst Martin King.
Traders will also be watching on Thursday for US natural gas stock data, with analysts expecting a drop in inventories that may boost prices, possibly encouraging some users who can switch fuels to burn more heating oil instead.
Prices are being restrained by expectations that a recent Northeast US cold snap will relent by the weekend, followed by warmer conditions that will temper demand in the world's top heating oil market.
Forecasters Meteorlogix on Wednesday predicted temperatures in the Northeast would reach 2-4 degrees Fahrenheit above normal on Sunday followed by near or above normal weather next week.
While weather limits the upside, expectations that Opec is ready to cut production again when it meets in one week have kept prices from retreating to a one-and-a-half-year low of $54.86 touched in mid-November.
The cartel, which pumps a third of the world's crude, cut output by 1.2 million barrels per day (bpd) from the start of November, but key members including Saudi Arabia have said they are concerned by the swollen state of consumer inventories.
US crude stocks still remain near would seem to suggest that more price 'corrective' action will be taken at the next meeting," said King.
"The question is whether the announced cuts will be the much discussed 500,000 bpd or greater?" "A 500,0000 bpd cut has likely already been largely priced into the market, while the possibility of additional production cuts on top of that number could well set the stage for additional price strength going into 2007."
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