Oil slips to US$78 as cold spell eases

NEW YORK: Oil prices fell for the fifth straight day on Friday, settling at $78 per barrel as expectations for reduced heating demand in the United States, a stronger dollar and high oil inventories pressured prices, according to Reuters.

Mild weather this week has reduced forecasts for fuel consumption, particularly in the United States, the world's top oil consumer, after a cold snap in many parts of the Northern Hemisphere helped push prices above $80 earlier in January.

U.S. crude oil futures for February delivery slid $1.39 to $78 a barrel, touching a low of $77.70. In London, the new front-month March contract for Brent crude slid $1.46 to $77.11 a barrel.

Oil prices have fallen every day this week, shedding about $5 from a 15-month intraday high of $83.95 on Monday.

"You're seeing further signs that without buoyant economic optimism, the oil markets continue to slide lower because of the poor underlying fundamentals in the market," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

Crude and fuel inventories in the United States rose last week, despite unusually cold weather, adding to already ample stockpiles, according to the U.S. Energy Information Administration.

U.S. demand for distillates, a fuel category that includes heating oil, was 4 percent below year-earlier levels in the four weeks ended January 8, according to the report. Temperatures are now forecast to exceed the seasonal norm, further suppressing consumption.

The International Energy Agency trimmed its global oil demand growth forecast on Friday, saying that the recent swathe of cold weather across major oil consuming countries had done little to boost fuel demand.

The Paris-based adviser to 28 industrial economies cut its prediction for global oil demand growth in 2010 by 20,000 barrels per day to 1.44 million bpd. However, it revised upward its forecast for total demand in 2010 by 10,000 bpd to 86.3 million bpd.

The U.S. dollar rose on Friday, boosted by data showing a rise in manufacturing and stable consumer price inflation.

Strength in the U.S. dollar typically pressures oil prices by discouraging investor interest in dollar-denominated commodities such as oil. Although the inverse correlation between the U.S. dollar and oil prices temporarily diminished earlier this week, the relationship reasserted itself on Friday.

On Thursday, oil prices edged up briefly after U.S. regulators announced proposals to cap the size of positions dealers can hold, aiming to limit speculation.

Analysts said the Commodity Futures Trading Commission had produced a set of largely workable proposals that would not inconvenience regular market users. The CFTC said the measures would affect only the 10 biggest position holders, if implemented immediately.- Reuters