Dec. 17 (Bloomberg) -- Crude oil futures are headed for their biggest weekly gain since March 2003 on speculation cold weather may boost demand in the U.S. Northeast, where 80 percent of the country's heating oil is used.

Oil surged 9.2 percent this week after a report showed U.S. heating-oil supplies unexpectedly dropped last week. An Arctic weather front over Canada may extend a cold-snap in the Northeast into next week, said Chris Mennis, owner of oil trading company New Wave Energy in Aptos, California.

``Everybody is watching the weather pretty closely,'' Mennis said. ``Right now we're 5 to 10 degrees below normal. If that remains we'll probably see a steady rise in prices.''

Crude oil for January delivery rose as much as 32 cents, or 0.7 percent, to $44.50 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $44.38 a barrel at 10:47 a.m. Singapore time. That is the biggest weekly gain since prices surged 12.1 percent in the week ended March 28, 2003.

Yesterday, the January crude contract fell a cent to $44.18 a barrel, having traded as high as $44.55 and as low as $43. Oil has declined 20 percent from a record of $55.67 on Oct. 25. Prices are up 33 percent from a year earlier.

U.S. crude oil stockpiles stood at 293.8 million barrels last week, 7.7 percent higher than a year earlier. Stockpiles of distillates, which include heating oil and diesel fuel, rose 37,000 barrels to 119.3 million barrels, the Energy Department said. Distillate inventories have averaged 125.8 million barrels in that week over the past five years.

Weather Front

The price rise Dec. 15 was ``way out of proportion with the numbers,'' said Michael Fitzpatrick, vice president of energy risk management at Fimat USA in New York. ``The cold weather added to the rally, but it's supposed to be cold this time of year.''

A band of mild ocean air over the U.S. Atlantic coast is coming up against a cold front sweeping south from Canada, according to forecaster AccuWeather Inc.

``The storm may not get its act together in time to produce a big dump of snow from Washington D.C. to New York,'' AccuWeather said on its Web site. ``No matter how much snow falls, it will turn much colder late in the weekend and early next week.''

The meeting of the two air masses could bring either heavy snowstorms across the Northeast, or warmer temperatures to the region, New Wave's Mennis said.

``You've got two conflicting weather patterns with two potential outcomes,'' he said. ``It'll be interesting to see which of those weather systems prevail.''

Demand for heat in the Northeast, the biggest consuming region for heating oil, will trail normal by 2 percent through Dec. 23, forecaster Weather Derivatives said. Temperatures across the U.S. will be close to normal over the same period, the Belton, Missouri-based researcher said.

OPEC

Heating oil for January delivery climbed 0.28 cent, or 0.2 percent, to $1.3840 a gallon in after-hours trading.

The Organization of Petroleum Exporting Countries, producer of more than a third of the world's oil, is pumping enough oil to supply markets and meet winter demand, the group said in a monthly report yesterday.

OPEC expects members need to pump 28.78 million barrels a day this quarter, compared with November output of 29.76 million a day, the report said. Members on Dec. 10 agreed to lower supplies as of next month to prevent a surge in inventories.

``Cuts in excess production will only come into effect as of Jan. 1, and therefore due to long shipping times, will not be felt in the market during the peak winter demand months in the Northern Hemisphere,'' Vienna-based OPEC said. ``Ample supply for winter is already on the way.''

Crude oil prices will reach $60 a barrel next year because of strong demand for gasoline and other fuels, Dallas energy investor Boone Pickens said yesterday.

Disruption of the world's ``very fragile'' oil supply infrastructure could send prices higher than $60, he said. ``You could fly up to really anything under certain circumstances,'' he said in an interview from Dallas.

Pickens repeated a forecast, which he made in September, that prices would reach $60 before dropping below $40.

To contact the reporter on this story: Gavin Evans in Wellington, New Zealand at gavinevans@bloomberg.net

Last Updated: December 16, 2004 22:00 EST