Crude Oil Drops a Second Day on Forecasts for Warmer Weather

Jan. 12 (Bloomberg) -- Crude oil dropped for a second day in New York on forecasts that cold weather in the eastern U.S. will abate this week, curbing demand for heating fuel.

Oil declined after a prediction that above-normal temperatures will begin moving into eastern cities such as New York and Boston later this week, according to MDA Federal Inc.’s EarthSat Energy Weather. The Northeast is responsible for about four-fifths of U.S. heating oil use.

“The cold snap in the U.S. seems to be breaking, according to forecasters,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “For distillates and heating oil that could see some demand coming off in the coming weeks and months.”

Crude oil for February delivery dropped as much as 53 cents, or 0.6 percent, to $81.99 a barrel in electronic trading on the New York Mercantile Exchange. The contract was at $82.13 at 8:33 a.m. Singapore time. Yesterday, futures fell 23 cents, or 0.3 percent, to $82.52 a barrel.

Earlier yesterday, oil touched $83.95, the highest level since Oct. 14, 2008, on a report that China, the world’s second- largest energy-consuming country, boosted crude purchases to a record last year and as the dollar fell against the euro.

The average temperature in New York was 27 degrees Fahrenheit (minus 3 Celsius) during the first 10 days of 2010, according to the National Weather Service. That’s six degrees below normal.

Distillate Supplies

U.S. inventories of distillates probably fell 1 million barrels last week from 159 million because of demand during the cold snap, a Bloomberg survey of 11 analysts showed before the Energy Department’s supply report this week. Nine respondents forecast a decline and two estimated a gain.

Oil supplies probably increased 1.5 million barrels last week from 327.3 million barrels during the five days ended Jan. 1, according to the Bloomberg News inventory survey. The Energy Department is scheduled to release its weekly report at 10:30 a.m. tomorrow in Washington.

The dollar posted its biggest drop yesterday against the euro since November on speculation that the Federal Reserve will extend stimulus measures after a report showed last week that employers unexpectedly cut jobs in December. Factory payrolls declined 27,000 in December after decreasing 35,000 in the prior month, the U.S. Labor Department reported on Jan. 8.

The dollar traded at $1.4494 per euro at 11:24 a.m. Sydney time, from $1.4513 yesterday.

Brent crude oil for February settlement dropped 40 cents, or 0.5 percent, to $80.97 a barrel on the London-based ICE Futures Europe exchange yesterday.