Mild winter sends oil prices down

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NEW YORK (AP) – Oil prices declined Monday, extending last week’s plunge as heating oil supplies go unused due to mild weather in the Northeast United States.

Prices had briefly rebounded in earlier trading on reports that OPEC oil ministers are considering another cut, and worries that a dispute between Russia and Belarus could result in energy shortages in parts of Europe.

But the rally failed to take hold, and prices resumed their weather-driven drop. Although forecasters say U.S. temperatures should drop back to normal over the next couple weeks, it won’t be enough to make up for the recent historically warm weather. U.S. supplies of crude oil and heating oil are above normal for this time of year, according to last week’s data from the U.S. Energy Department.

“If you were walking around anywhere in the Northeast this weekend, people were in shorts – it was like a summer day. Obviously, that’s been the story: the winter that was not,” said Tom Bentz, analyst at BNP Paribas Commodity Futures in New York. “There are some reports of a little colder weather in the forecast, but I don’t think that’s much of an issue. We’ve gone this far without anything, so there are no worries about supply.”

Light, sweet crude for February delivery dropped 62 cents to $55.69 a barrel in afternoon trading on the New York Mercantile Exchange, in a volatile session that saw crude rise as high as $57.72 and fall as low as $55.10. The contract had declined nearly 8 percent last week, the biggest one-week drop since April 2005.

Brent crude for February fell 51 cents to $55.13 a barrel on the ICE Futures exchange.

Heating oil futures decreased 1.48 cent to $1.5510 a gallon; natural gas prices gained 15.5 cents to $6.339 per 1,000 cubic feet; and gasoline futures fell nearly 3 cents to $1.4645.

Gas prices at the pump have yet to follow suit – the average U.S. retail price for a gallon of gasoline is $2.305, compared to $2.300 a month ago, according to AAA – but analysts say if the futures plunge holds, a drop in wholesale costs should allow retailers to lower prices.

On Monday, the energy markets had initially bounced higher on news that Russian oil exports to Europe through neighboring Belarus were halted, causing the two countries’ trade dispute to affect other European countries including Germany and Poland.

Traders later brushed off the news, though, as EU energy chief Andris Piebalgs said the situation posed “no immediate risk” to energy supplies in the European Union. Refineries in the EU maintain strategic oil stocks.

OPEC’s anxiety over recent price declines wasn’t enough to keep the energy markets stoked, either.

Citing a senior OPEC source, Dow Jones Newswires reported Monday that members of the Organization of Petroleum Exporting Countries have begun talks on the potential need for a further output cut in response to a 10 percent drop in oil prices since the beginning of the year. OPEC had no immediate comment.

If OPEC announced another production cut – on top of the 1.2 million barrel-a-day reduction that began in November, and the 500,000 barrel-a-day cut set to begin Feb. 1 – prices would likely rise. Still, OPEC’s previous cuts haven’t been able to keep crude prices above $60 a barrel for long, largely because many traders doubt that the cuts are fully enforced.

If the Russia-Belarus dispute continues, European energy supplies could tighten and cause a bounce in prices. Also, prices are likely to get a boost ahead of the spring driving season.

Bentz predicted that crude prices could fall as low as the $52-$54 range in the short-term, but will probably rally back into the $60-$65 range, given the usual seasonal swings and the potential for supply cuts by OPEC.

James Cordier, president of Liberty Trading Group in Tampa, Florida, also said prices would probably bounce back to the $60-$65 range as the spring approaches. But, he added, they aren’t likely to go much higher than that, as a mild 2006 hurricane season and the recent warm winter weather have left the United States with a supply glut.

“2007 will not be a year of new records for energy prices,” Cordier said.

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