Oil prices climbed yesterday as tight supplies of distillate fuels ahead of the northern hemisphere winter spurred buying.
London IPE Brent rose 61 cents to $43.33 a barrel , while US light, sweet crude gained 46 cents to $46.68 a barrel.
"It's because we've had such an explosive rise in heating oil prices - I don't think we've ever seen such a dramatic increase in the spread between heating oil and crude," said Kevin Norrish of Barclays Capital.
London IPE gas oil used as a basis to price distillates such as heating oil, added $16.75 from the previous day's settlement and about $5 from late Thursday levels to $440.50 a tonne. This boosted the spread between January gas oil and front month Brent to record levels of over $14 a barrel.
Gas oil has gained well over six per cent so far this week, dragging up refining profits and spurring physical oil buying to staunch a three and a half week slide on crude futures.
The rally comes after prices plunged nearly 17 per cent from record highs in late October, as signs of building crude supplies and slowing demand growth drove investors out of energy and into financial or equity markets.
Dealers are concerned about the adequacy of heating oil inventories, which are significantly below last year's levels in the top markets of the US, Germany and Japan. US supplies are 16 per cent less than year-ago figures.
NYMEX heating oil futures were up 1.21 cents to $1.4421 a gallon in New York.
An early or severe winter could cause a price spike with household demand for heating. Continued mild weather, however, would give refiners more time to replenish stocks, providing a cushion against future cold snaps.
The US National Oceanic and Atmospheric Administration said on Thursday in a revised forecast that winter would be likely to bring warmer-than-normal conditions in the west and colder temperatures in the East, including the heavy-consuming northeast.
Demand for oil products on physical markets has been strong this week. Traders said China, the world's second-largest energy user, had boosted diesel imports to their highest levels since early 1999 to make sure supplies do not run short as in 2003.
Chinese oil importers have booked at least 450,000 tons of diesel for November - more than four times October's estimated volume - hoping to avoid the kind of supply crunch that forced hundreds of gas stations to ration sales a year ago.
Oversupply on crude markets has also focused attention on the Opec producers cartel, which has been pumping near flat out at near 30 million barrels per day since the late summer.
Venezuelan Energy Minister Rafael Ramirez said late on Thursday his country would support a cut in oil production by oil cartel Opec when the producers' group next meets on December 10.
The minister said Opec member Iran had already made a proposal to cut production at the upcoming meeting. Some producing nations are concerned that a potential build-up in crude stocks over the next few months could depress oil prices.
On Thursday the Opec cartel revised down its expectations of oil demand growth for next year and projected a rare big winter stockbuild if the group keeps producing at current levels.
"There's a growing realisation that the Opec basket price is very low. Opec may well be thinking about cutting production," said Barclay's Mr Norrish.