Oil rose above $96 on Wednesday, bolstered by expectations that the United States government data would show crude stocks falling for the seventh consecutive week, and as fresh violence in major oil exporter Nigeria revived supply concerns.
US light crude for February delivery rose 47 cents to $96.45 a barrel by 0222 GMT, while London Brent crude rose 49 cents to $94.34 a barrel.
Oil prices rose nearly 58 per cent last year, the biggest annual gain this decade, rallying strongly in the fourth quarter to touch a record high $99.29 a barrel on November 21 as the US dollar fell and swollen US oil stockpiles thinned.
"After last week's report, the market will be quite sensitive to another decline in crude stocks, so another draw this week will definitely put some upward pressure on prices," said David Moore, a resource analyst at the Commonwealth Bank of Australia.
US crude oil inventories were expected to have fallen 1.8 million barrels last week, the seventh straight week of decline, as refiners boosted utilisation, according to a preliminary Reuters poll of industrial analysts on Monday.
Distillate stocks, which include heating oil and diesel, were forecast to have increased by 300,000 barrels after three weeks of decline, the survey showed.
The weekly oil inventory report will be released on Thursday, a day later than usual due to the New Year holiday.
Oil traders will also be particularly sensitive to any signs of further fund investment in commodities at the start of the year as the sector rebounded from a loss in 2006, with the broad Reuters/Jefferies CRB Index up nearly 17 per cent in 2007.
Oil prices surged in January 2006 as investors ploughed fresh capital into commodity indices, but they fell just as sharply at the start of 2007 when a hoped-for repeat failed to materialise.
Meanwhile, temperatures in northwest Europe and in the US northeast were expected to fall below normal later this week, pushing heating demand above seasonal averages, weather forecaster Meteorlogix said on Monday.
News of renewed violence in Nigeria, the world's eighth-largest oil exporter, have escalated concerns about the reliability of the country's oil supplies.
Suspected militants attacked two police stations, a luxury hotel and a night club in Nigeria's oil city Port Harcourt on Tuesday, killing 18 people, police said.
Frequent attacks by militant groups since February 2006 have already driven thousands of foreign oil workers from the oil-rich Niger Delta and cut the nation's oil exports by about 20 per cent.
Fears of political instability in Pakistan in the wake of Benazir Bhutto's killing have also supported oil prices. (Reuters)
Oil price rose over $96 as US eyes stock draw