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Oil prices fell more than $2 a barrel Thursday (Jan. 4) — extending a similarly sharp slide a day earlier — after the government reported that inventories of gasoline, heating oil and diesel fuel rose more than analysts expected during the last week of 2006.
The Associated Press reported that warmer-than-normal temperatures for this time of year in the Northeast and Midwest have led to a buildup in inventories and, as a result, weaker prices.
“There is no winter at all, thus we have a lot of supplies with no home and prices have nothing to do but fall,” said James Cordier, president of Liberty Trading Group in Tampa, Florida.
Light, sweet crude for February shed $2.67 to $55.65 a barrel in afternoon trading on the New York Mercantile Exchange. If crude closes near this level, it will be the lowest close since June 2005.
On Wednesday, the contract plunged $2.73 to $58.32 a barrel, the biggest one-day drop since Aug. 17, 2005.
Weather has become an increasingly important factor in the price of oil in recent years. A warm winter and a mild hurricane season last year have combined with a forecast for warmer-than-normal temperatures this winter to pressure oil prices.
Demand for heating oil has been running 20% to 30% below normal for most of the past five weeks, said Man Financial commodities analyst Edward Meir, in a note to clients.
Western states have recently seen snow and freezing temperatures, and two major snowstorms hit Colorado last week. But Fadel Gheit, senior energy analyst with Oppenheimer & Co., notes that about 80% of heating fuel demand comes from the densely populated Northeast and Midwest, where temperatures have been balmy.
Gheit said last week’s snow storms — which forced hundreds of canceled flights and road closures — may have contributed to the decline in demand for gasoline and jet fuel.