Crude holds above $58; traders await natural-gas data

by Myra P. Saefong & Ciara Linnane (MarketWatch)

Crude-oil futures held above $58 a barrel on Thursday, on expectations that demand for fuel will rise as the U.S. economy appears in better shape than previously thought and after data showed the first decline in distillates in seven weeks.

Crude for March delivery was last up 6 cents at $58.20 a barrel on the New York Mercantile Exchange. Regular trading on the exchange now begins at 9 a.m. Eastern -- an hour earlier each weekday. Earlier, the contract rallied to a four-week high of $58.40, after gaining more than 2% on Wednesday. Forecasts for continued cold weather as well as today's official start to the Organization of the Petroleum Exporting Countries' pledge to cut output by another 500,000 barrels a day added to support for oil prices.

The Federal Reserve on Wednesday left key interest rates unchanged as widely expected, but published a policy statement that was upbeat on economic growth and inflation expectations. See full story.

The statement came after data showed a bigger-than-expected 3.5% rise in gross domestic product in the fourth quarter. See full story. Traders expect a stronger economy to increase demand for oil and its products. Weekly data on oil supplies were also viewed as overall supportive of prices. The Energy Department said crude inventories rose by 2.7 million barrels in the latest week, up for a third week, but distillates, which include heating oil, fell 2.6 million barrels to mark the first decline in seven weeks. See full story.

The draw was slightly bigger than expected after the recent cold snap. The cold weather lifted demand for distillates by 11% versus the week earlier, said Doug Leggate, analyst at Citigroup.

"With the weather outlook seemingly colder through February, distillate stocks look set to fall further," he said in a morning note. Meanwhile, natural gas prices rose 2.7%, or 20.3 cents, to $7.87 per million British thermal units ahead of the release of weekly data on levels of natural gas in storage underground. Fimat USA said the market expects the data, due at 10.30 a.m. Eastern, to show a draw of 200 billion to 210 billion cubic feet. Fimat's looking for a draw closer to 228 billion.

Crude futures closed out January with a 6.8% loss on the month after finishing December at $62.38. Still, they have rebounded from the $49.90 a barrel low hit by the February contract on January 18 at the height of a rout of commodities. Raymond James on Thursday said it's cutting its oil-price forecast for 2007 after the steep decline at the beginning of the year.

"While the winter started off more mildly than expected, we think the oil sell-off in January was more technical and financial market-driven rather than fundamentally driven," said analyst J. Marshall Adkins. "

Raymond James is cutting its first-quarter forecast to $57 a barrel from $63, although it expects the price to rise to $70 by the fourth quarter. For all of 2007, it's expecting an average price of $64, down from a prior forecast of $67. "We continue to believe that the supply/demand fundamentals for oil are actually tighter than they were a year ago," said Adkins. Current prices factor in very little geopolitical risk, he said "though we believe risk from `wildcard' countries (Iran, Venezuela, Iraq, Nigeria) is still very real."

"While the markets are not yet comfortable with $60+ oil, we believe this will gradually change in the next year," he said.

In equities, benchmarks tracking oil-related shares climbed to reflect the recent strength in the crude futures. The Amex Oil Index ($XOI:1,170.32, +6.05, +0.5% ) gained the most ground.

In metals, gold futures climbed past $660 an ounce to trade near their highest level in six months. See Metals Stocks.

Taking a broad measure of the commodities markets, the Dow Jones AIG Commodity Index (2609104 0.00, 0.00, 0.0% ) stood at 167.10 points, up 0.6% from the previous trading session. See more of the latest prices for commodity futures.