Oil extends rally amid gas row

SINGAPORE – Oil prices rose half a per cent yesterday, extending year-end gains after a brief cut in Russian natural gas supplies to Europe rattled traders and threatened to drive up demand for oil-based heating fuels.

US February light crude climbed 29 cents to US$61,33 a barrel by 0700 GMT, building on the three-day rally that lifted prices five per cent at the end of last year. Oil averaged US$56,70 a barrel in 2005, 37 per cent more than the year before.London Brent crude was up 32 cents at US$59,30 a barrel.”Although Russia has restored deliveries to Ukraine, the psychological impact of such a supply disruption in Europe has given a boost to prices,” said Dariusz Kowalczyk, Hong Kong-based senior investment strategist at CFC Seymour Securities.”Investors are now going to build a higher risk premium into their bottom line.”Russian state-controlled producer Gazprom cut natural gas supplies to Ukraine on January 1 after the former Soviet neighbour rejected demands to pay four times more for its gas – a sharp break with subsidised prices rooted in Soviet times.Several countries in Europe – which relies on Russia for a quarter of its gas – reported sharp falls in gas deliveries before Moscow began restoring supplies on Monday, bowing to Western pressure to avert an energy crisis.Russia accused Kiev of illegally tapping off gas from the pipeline crossing its territory to Europe after the feed was cut, but it agreed on Monday to restore flows to close to normal levels.Hungary and Austria said imports had returned to normal.The underlying dispute remained unresolved, however, raising concerns over Europe’s long-term dependence on Russian energy amid a lack of readily available alternatives.Russia is the world’s second-biggest crude oil exporter.Analysts said the disruption to gas supplies may drive up heating oil consumption as colder weather sets into Europe.Energy demand for heating will be above normal for the next few days, according to private forecasters Meteorlogix.”It is likely that we are going to see demand for heating oil rise in Europe as end-users look for alternatives to gas,” said Gerard Burg, minerals and energy economist at National Australia Bank.In Iraq, crude oil exports from the country’s main Basra oil terminal in the south resumed on Monday as the weather improved and logistical problems were solved.But total December exports were still at a postwar low of 1,1 million barrels a day, officials said, about half the level seen during sanctions under Saddam Hussein.”The risk premium on oil prices will continue to remain strong as long as supply flow problems, as in the case of Iraq, exist,” Kowalczyk said.-Nampa-ReutersOil averaged US$56,70 a barrel in 2005, 37 per cent more than the year before.London Brent crude was up 32 cents at US$59,30 a barrel.”Although Russia has restored deliveries to Ukraine, the psychological impact of such a supply disruption in Europe has given a boost to prices,” said Dariusz Kowalczyk, Hong Kong-based senior investment strategist at CFC Seymour Securities.”Investors are now going to build a higher risk premium into their bottom line.”Russian state-controlled producer Gazprom cut natural gas supplies to Ukraine on January 1 after the former Soviet neighbour rejected demands to pay four times more for its gas – a sharp break with subsidised prices rooted in Soviet times.Several countries in Europe – which relies on Russia for a quarter of its gas – reported sharp falls in gas deliveries before Moscow began restoring supplies on Monday, bowing to Western pressure to avert an energy crisis.Russia accused Kiev of illegally tapping off gas from the pipeline crossing its territory to Europe after the feed was cut, but it agreed on Monday to restore flows to close to normal levels.Hungary and Austria said imports had returned to normal.The underlying dispute remained unresolved, however, raising concerns over Europe’s long-term dependence on Russian energy amid a lack of readily available alternatives.Russia is the world’s second-biggest crude oil exporter.Analysts said the disruption to gas supplies may drive up heating oil consumption as colder weather sets into Europe.Energy demand for heating will be above normal for the next few days, according to private forecasters Meteorlogix.”It is likely that we are going to see demand for heating oil rise in Europe as end-users look for alternatives to gas,” said Gerard Burg, minerals and energy economist at National Australia Bank.In Iraq, crude oil exports from the country’s main Basra oil terminal in the south resumed on Monday as the weather improved and logistical problems were solved.But total December exports were still at a postwar low of 1,1 million barrels a day, officials said, about half the level seen during sanctions under Saddam Hussein.”The risk premium on oil prices will continue to remain strong as long as supply flow problems, as in the case of Iraq, exist,” Kowalczyk said.-Nampa-Reuters