Oil: Price extends gains

NEW YORK - Oil prices extended a week's worth of gains on Wednesday as dealers awaited a US government report expected to show a decline in commercial crude stockpiles.

US light crude firmed 28 cents to US$63.42 a barrel, bringing prices more than US$5 higher than a week ago as big money funds rushed into the commodity markets. London Brent crude rose 33 cents to US$61.68 a barrel.

The boost on Wednesday came as dealers expected the US Energy Information Administration's weekly report to be released Thursday morning to show a decline in crude stockpiles of just over 1 million barrels.

"Continued end-of-year destocking and rising refinery utilisation should have produced a crude stock draw," said Marshall Steeves, energy analyst at Man Financial.

The gains were limited after Russia and Ukraine settled a natural gas dispute that briefly disrupted supplies to Europe.

Russia's state-owned gas monopoly Gazprom said on Wednesday it had reached a five-year gas supply deal with Ukraine, which had refused to pay a four-fold price increase.

The Russia-Ukraine deal came just hours before EU emergency talks to discuss concerns over the stability of energy supplies, including from Russia.

The country has the world's largest gas reserves and is also the world's second-largest exporter of crude oil.

Recent attacks on oil facilities in Nigeria, Iran restarting its nuclear programme, and continued problems with exports from Iraq were also fanning concern about the security of global supplies, analysts said.

"When you step back and put it all together, it's nice timing," said Mike Wittner of Calyon. "It's a New Year's reminder of the geo-political factors that are driving the market higher."

Rallied sharply

Oil prices have rallied sharply since the end of 2005 as fresh investment and speculative funds flow into the market, and analysts said commodities are set to remain a hot ticket item for money managers in 2006.

"Investors have an innate tendency to allocate money to sectors that make money, and the strong commodity bull market still has some way to run," said Michael Coleman, managing director of Singapore's Aisling Analytics, a hedge fund manager.

Oil averaged US$56.70 a barrel last year, about 37 per cent more than in 2004.

Analysts say the lack of spare refinery capacity, strong global demand growth, and geo-political uncertainties could keep the rally going.

The economy in the US -- the world's biggest fuel consumer -- is expected to expand by 3.4 per cent in 2006, while China, the No. 2 oil user, is expected to grow 8 to 9 per cent, according to a Reuters poll conducted in December.

The higher prices may dissuade Opec from cutting supplies when the group meets in late-January.

Opec President Edmund Daukoru, Nigeria's minister of state for petroleum, said on Wednesday the group should only consider a cut if there is a big drop in prices.

Some members of the Organisation of Petroleum Exporting Countries want the cartel to cut output by about 3 per cent, or 1 million bpd, in the second quarter, Indonesia's Opec governor Maizar Rahman said earlier.

- REUTERS