Oil surges on U.S. plan to boost emergency stockpile

By Matthew Robinson
Tuesday, January 23, 2007; 3:40 PM

NEW YORK (Reuters) - Oil jumped over 4 percent to $55 a barrel on Tuesday as the United States announced plans to build up its emergency crude reserves and as colder weather pushed up demand in the world's top consumer.

U.S. crude settled up $2.46 to $55.04 a barrel, the biggest daily gain since November 20, after trading as high as $55.15 during intraday activity. London Brent crude was up $2.40 at $55.10.

U.S. Energy Secretary Sam Bodman announced the government will buy 100,000 barrels per day (bpd) of oil over a few months starting in the spring to add 11 million barrels to the Strategic Petroleum Reserve.

In addition, President George W. Bush plans to call for a doubling of the Strategic Petroleum Reserve's capacity in his State of the Union speech Tuesday, the White House said.

"The market has turned a corner here. The plans to expand the U.S. Strategic Petroleum Reserve seems to have been recognized as a bullish factor," Tim Evans, Citigroup Global Markets.

"The government can spin it any way they like, but the history, from the 1970's on, is very clear. During periods when the reserve is being increased, prices tend to rise."

President Bush is also expected to announce on Tuesday plans to reduce U.S. gasoline consumption by 20 percent over 10 years and encourage development of alternative fuels to help wean the United States off foreign oil.


Warm U.S. temperatures in early January pushed crude to a 19-month low of $49.90 last week from over $61 a barrel in late December. But prices began to rebound as winter weather hit the U.S. Northeast, the largest heating oil market.

"There's a slow shift toward a focus on colder weather, and we may look back on this and see that a bottom in the market was being put in, but it's too early to tell," said Mike Fitzpatrick, vice president at Fimat USA.

OPEC ministers believe the market will stabilize once it feels the full effect of the cartel's 1.7 million barrels per day output reduction. Oil has fallen 32 percent from its $78.40 record in July.

OPEC President Mohammed al-Hamli said a reasonable price for the group's crude basket is $55 a barrel -- at least $5 higher than the current level for the reference price, which is valued at a $5-$6 discount to U.S. crude.

"We are not panicking...concerned, I think, because we are embarking on huge investment programs and the price in that respect is very important because of the outlays," he said on Tuesday.

A poll of analysts ahead of weekly U.S. inventory data to be released on Wednesday showed the colder weather would likely cause an 800,000 barrel draw in distillate stocks, including heating oil.

The data was expected to show a 1.1 million barrel rise in crude stocks, a 1.3 million barrel build in gasoline inventories, and a 0.4 percentage point fall in refinery runs.

(Additional reporting by Peg Mackey and Barbara Lewis in London and Maryelle Demongeot in Singapore)

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