Oil held firm above $96 a barrel on Monday, heading for its biggest annual gain this decade as growing geopolitical concerns and dwindling consumer nation stockpiles outweighed the risk of a softening US economy. US light crude for February delivery rose 24 cents to $96.24 a barrel by 0721 GMT, while London Brent crude rose 27 cents to $94.15 a barrel.
Oil prices are up almost 58 percent since the start of the year and touched a record high of $99.29 on November 21 as a falling US dollar and thinning inventories stoked investor interest. Geopolitical risks 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.
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. 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.
If prices hold, they will register their best performance for a front-month contract since 1999, when oil prices more than doubled as they rocketed back from a $10 low. Oil rose by 57.3 percent in 2002, their strongest gain this decade.
On an average basis, 2007 will set another record at just above $72.36, 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.
Pakistani electoral officials hold an emergency meeting on Monday to decide whether to proceed with a January poll after the nation was plunged into crisis by the assassination of former prime minister and opposition leader Benazir Bhutto.
Bhutto's party named her 19-year-old son and husband on Sunday to succeed her, but doubts grew about whether a January 8 poll aiming to transform Pakistan from military rule to civilian rule would go ahead. While Pakistan is not a major crude producer, escalating tensions after Bhutto's assassination have stoked supply concerns in the region.
In the Middle East, comments from Iran's Foreign Minister Manouchehr Mottaki on Sunday about Tehran starting its first atomic power plant in mid-2008 added to geopolitical concerns.
Mottaki also told Iranian media that Tehran wants assurances that the United States will accept the results of talks on Iraq before holding a new meeting about ways to end violence in the country. Separately, Iraq plans to boost sales of Kirkuk oil by at least 100,000 barrels per day starting in January and is offering incentives to win back and retain customers, an Iraqi official said on Friday.