Oil above $96, eyes biggest gain this decade

Written by Reuters | London, December 31: | Updated: Dec 31 2007, 22:29pm hrs
Oil rose above $96 a barrel on Monday, heading for its biggest annual gain this decade as dwindling fuel stocks and growing concern over political turmoil offset the impact of a softening US economy.

US crude climbed 12 cents to $96.12 a barrel by 1155 GMT, while London Brent crude gained 42 cents to $94.30.

With prices starting the year at around $61, oil is now up almost 58 percent. It hit an all-time high of $99.29 on Nov. 21 as a falling US dollar and thinning inventories stoked investor interest.

Oil's rally is entering its seventh year, more than quadrupling its market value of below $20 at the start of 2002.

If prices hold, they will register their best performance for a front-month contract since 1999, when oil prices more than doubled from a $10 low.

Oil is set to average around $72.30 this year, up about 9 percent from 2006.

In January, as futures prices tumbled, analysts had expected prices to fall to an average $63.23 a barrel this year, according to a Reuters poll.

The latest poll showed a consensus forecast for a rise in prices to $77.62 a barrel next year.

Political tensions have lately come back to the fore, with instability in nuclear-armed Pakistan depressing the dollar and lifting oil, and Iran's foreign minister saying the OPEC member aimed to start its first atomic power plant next year.

But prices fell 62 cents on Friday, ending a four-day rally, after data showing a 9 percent decline in sales of new US homes last month heightened fears the economy would slump into recession.

"Energy markets will continue to be buffeted by two countervailing forces for the balance of this week, but we would give the edge to the bulls, who should maintain relative control for at least a little while longer," said Edward Meir of MF Global.

While oil prices have been buoyed by a slide in US crude stocks to below seasonal norms, some analysts are already looking beyond the peak demand winter season.

"We do see this squeeze starting to ease in the new year, as the peak of the heating season will pass in 3-4 weeks, more US refineries come back into service in 2008, and the focus shifts back to gasoline inventories," said First Energy Capital analyst Martin King.