5:43 AM
By Randy Fabi and Dmitry Zhdannikov
SINGAPORE/LONDON | Fri Dec 31, 2010 7:24am EST
SINGAPORE/LONDON (Reuters) - Oil was set to close the year up more than 12 percent, despite a slight decline on Friday, due to a resurgence in global demand, an unusually cold winter and falling inventories.
Crude was also on track to average $79.60 a barrel for the year, second only to 2008's record average of $99.75.
Strong demand for raw materials, especially in China, is expected to push oil even higher next year, analysts said, although cautioning the global recovery was still fragile.
After rallying to a 26-month high of $91.88 on Monday, U.S. crude edged lower on the day, with the February contract down 30 cents at $89.54 a barrel by 1158 GMT. ICE Brent crude fell 40 cents to $92.69.
U.S. crude stocks fell for the fourth straight week last week, but the drawdown was less than expected and put downward pressure on prices. <EIA/S>
But the fall in gasoline stocks was much bigger than expected on year-end holiday travel demand, possibly signaling rising consumption as the world's largest economy recovers from recession.
"The latest U.S. weekly data release show a continuation of the recent strength in oil demand," said analysts at Barclays Capital in a research note.
"December is set to be the strongest month of the year in demand terms, with particularly strong indications of gasoline demand," they added.
Including all products, the total US implied demand has risen to the highest level of the year and above the levels of 2008, said Olivier Jakob from Petromatrix.
It was, however, soaring demand in Asia that analysts said contributed most to healthy gains in oil and commodities in 2010. Prices in metals and soft commodities also beat records or climbed near multi-year highs.
Chinese President Hu Jintao said on Friday the global recovery would remain difficult but China would work to ensure that its economic growth is stable and fast next year.
The Reuters-Jefferies CRB index .CRB of 19 commodities is up 16 percent on the year, a more attractive return than on stocks. .SPX
However, some analysts have cautioned against excess optimism about a continuation of the rally in 2011.
"Some positive economic news from the U.S. (such as the recent decline in initial jobless claims) at year ending should not outshine how fragile the global economic recovery is," said analysts at JBC Energy.
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