Oil surges on supply worries

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VIENNA, Austria (AP) -- Oil prices climbed nearly $2 a barrel Wednesday amid expectations a report will show U.S. crude inventories fell last week for the seventh straight decline for the world's largest energy consumer.

A new outbreak of violence in Nigeria also pushed prices higher as a military spokesman saying that 13 people were killed in an attack by militants on the main oil industry center of Port Harcourt.

The inventory report by the U.S. Energy Department's Energy Information Administration is due Thursday, a day later than usual because of Tuesday's New Year's holiday.

Light, sweet crude for February delivery gained $1.86 to $97.84 a barrel in electronic trading on the New York Mercantile Exchange by afternoon in Europe.

February Brent crude rose $1.72 to $95.57 a barrel on the ICE Futures exchange in London.

Oil prices fell 2 cents on the Nymex to settle at $95.98 a barrel Monday - the last trading day of 2007 - ending the year 57 percent higher than where they began.

Crude futures surged in 2007 as demand from booming economies in Asia increased. More volatility is expected in the crude futures market this year, analysts said, adding it would be of little or no surprise if oil prices surpassed $100 a barrel.

"Fundamentally, I think there may be downward pressure on price, but if there's any supply outage or major turmoil or major problems in producing areas you could easily see prices spike over $100 a barrel," said Jeff Brown, managing director and chief economist at FACTS Global Energy in Singapore.

Other factors that have influenced energy prices recently are: the West's standoff with Iran over its nuclear program; Turkish assaults on Kurdish positions in northern Iraq that have sparked concerns about possible retaliation against an oil pipeline in the area and attacks, such as the most recent one by Nigerian rebels on the oil-rich nation's crude infrastructure.

Nigeria is Africa's leading oil producer, and fifth-biggest source of U.S. oil imports. The attacks have cut the country's oil exports of 2.5 million barrels a day by more than 20 percent in the last two years, and have added to the upward pressure on global oil prices.

The assassination of Pakistani opposition leader Benazir Bhutto last week has also exacerbated worries about global instability.

Oil reached a trading record of $99.29 on Nov. 21, and remains close to the range of inflation-adjusted highs set in early 1980. Depending on how the adjustment is calculated, $38 a barrel then would be worth $96 to $103 or more today.

Vienna's PVM Oil Associates noted that "2007 was the 6th consecutive year with year-end prices higher than at the start of the year." Still, it said prices rose only 9 percent overall between 2006 and 2007, "which is the lowest in five years."

Additional upward pressure on prices is expected to be generated by Thursday's U.S. inventory figures. The report is expected to show U.S. crude stocks fell 1.8 million barrels, according to the average forecasts of analysts polled by Dow Jones Newswires. The data covers the week that ended Dec. 28.

While gasoline inventories are seen growing 1.6 million barrels, according to the Dow Jones survey of analysts, stocks of distillate, which includes heating oil and diesel fuel, are expected to fall 300,000 barrels. And at 293.6 million barrels, U.S. crude oil inventories now stand at their lowest level since January 2005, and are in the lower half of the average range for this time of year.

In other Nymex trading, heating oil futures rose nearly 5 cents to $2.6958 a gallon while gasoline prices climbed over 5 cents to $2.5450 a gallon. Natural gas prices advanced more than 21 cents to $7.70 per 1,000 cubic feet.