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Winter blast sends oil prices to 14-month high

SNOW, ice and wind wreaked havoc on energy markets yesterday, where a barrel of oil topped US$83 for the first time since the fall of 2008.

Benchmark crude settled up US$1.41 at US$83.18 a barrel on the New York Mercantile Exchange, the highest close since Oct. 9, 2008.

Two fronts sent oil prices rocketing, however, the second being divisions among Federal Reserve policymakers over extending a program to bolster the U.S housing industry.

That sent the dollar sliding to three week lows, and crude prices to a 15-month high.

It could be a worrisome harbinger for consumers, who saw oil prices double last year for much the same reason.

When the dollar falls, it makes oil more affordable for anyone investor holding a stronger currency because crude is bought and sold in dollars.

According to the minutes released yesterday from a closed-door Fed meeting in December, a "few members" believed that the US$1.25 trillion program to buy mortgage securities from Fannie Mae and Freddie Mac might need to go on past the current cut off date of March 31.

Within 5 minutes of that information being released, crude prices jumped about a quarter to above US$83 a barrel.

Prices were already rising as dangerous temperatures knocked fruit from vines in Florida and made driving treacherous in New England.

The Fed minutes and Arctic air easily trumped a surprise report yesterday from the Energy Information Administration that showed the supply of crude and gasoline is growing in the U.S.

The amount of gas placed into storage last week was three times greater than what was expected by energy analysts polled by Platts, the energy information arm of McGraw-Hill Cos.

That hasn't stopped gasoline prices from rising as a sharp uptick in crude prices pulls pump prices along.

By the weekend, the national average retail price for a gallon of gasoline in the U.S. will top US$2.70, predicted Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

That would be a rough start to the year for U.S. consumers. Prices never hit that high last year, even during the peak of the driving season over the summer.

In other Nymex trading in February contracts, heating oil rose less than a penny to settle at US$2.2032 a gallon. Gasoline rose 1.16 cents to settle at US$2.1366 a gallon. Natural gas futures rose 37.2 cents to settle just above US$6.

In London, Brent crude for February delivery rose US$1.30 to settle at US$81.89 a barrel on the ICE Futures exchange.


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