Oil hits $58 as cold weather bites

NEW YORK (CNNMoney.com) -- Oil prices hit $58 a barrel Wednesday, adding to Tuesday's big gain, as cold weather in the Northeast knocked down heating fuel supplies and OPEC geared up for another production cut.

U.S. light crude for March delivery rose $1.17 to close at $58.14 a barrel on the New York Mercantile Exchange. Oil had traded down 60 cents just prior to the report's release.

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In its weekly inventory report, the Energy Information Administration said distillate supplies, used to make heating oil, fell by 2.6 million barrels last week, slightly more than expected by analysts polled by Reuters.

Crude stocks rose by 2.7 million barrels, and gasoline stocks increased by 3.8 million barrels. The big gains - analysts were looking for a 1.1 million-barrel gain in crude supplies and a 1.5 million-barrel build in gasoline stocks - initially sent crude prices lower.

"It was a bit of a knee-jerk reaction," said John Kilduff, an energy analyst at Fimat in New York.

Kilduff noted the cold weather and OPEC cuts, saying "some of the bearish factors in the market have left."

Wednesday's uptick in price comes after a 5 percent jump Tuesday, the biggest one-day gain in more than 16 months, as cold weather lingered over the U.S. Northeast and traders anticipated a drop in distillates.

Unseasonably warm weather this winter had led to a glut of heating oil and helped push prices to a 20-month low of 49.90 on Jan 18.

But winter's stay is expected to continue, with the National Weather Service forecasting below-average temperatures in the Northeast, the world's largest heating oil market, for the next six to 10 days.

Also keeping oil above the high end of its recent $50 to $56 range, the Organization of Petroleum Exporting Countries was due to cut 500,000 barrels per day of production on Thursday - even with analysts still assessing the group's compliance with the 1.2 million bpd cut that was to have been implemented last Nov. 1.

Algeria's energy minister, Chakib Khelil, told Reuters OPEC was expected to leave output unchanged when it holds its scheduled meeting on March 15 in Vienna.

Khelil's observations were similar to those from Nigerian Oil Minister Edmund Daukoru, who said most OPEC members favored implementing cuts already agreed to before new measures are taken.

Oil prices have slid roughly 9 percent since the beginning of the year as warm weather, high inventories, a slowing economy and doubts over whether OPEC can deliver a meaningful production cut have scared a lot of speculative money out of the market.

Oil is down nearly 30 percent since all-time highs hit in July 2006.

Stocks of oil majors, including BP (Charts), Exxon Mobil (Charts), ConocoPhillips (Charts), Chevron (Charts) and Royal Dutch Shell (Charts) have followed crude prices lower, with the AMEX oil and gas index down around 3 percent so far this year.

--Reuters contributed to this report

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