December 31, 2007 / 12:53 AM / 10 years ago

Oil slips but sees biggest annual gain this decade

3 Min Read

<p>An oil rig in a file photo.File</p>

NEW YORK (Reuters) - Oil slipped on Monday to just below $96 a barrel, closing 2007 with the biggest annual gain this decade.

U.S. crude futures settled 2 cents lower at $95.98 a barrel as the dollar gained against the euro, capping a year which saw prices swing from a low under $50 to over $99. U.S. oil ended 2006 at $61.05 a barrel.

London Brent crude settled 3 cents lower at $93.85 a barrel, up from $60.86 at the end of 2006.

Oil peaked on November 21 at an all-time high of $99.29 a barrel on winter supply concerns, the weak dollar and rising flows of speculative money.

Growing geopolitical concerns have also supported prices.

Signs that the credit crisis may hurt oil demand in top consumer the United States and forecasts for above average U.S. winter temperatures have pressured prices in recent weeks, however.

"Energy markets will continue to be buffeted by two countervailing forces for the balance of this week, but we would give the edge to the bulls, who should maintain relative control for at least a little while longer," said Edward Meir of MF Global.

Dealers were watching turmoil in nuclear-armed Pakistan after Benazir Bhutto's assassination, amid Iran's nuclear ambitions and a weak U.S. dollar.

Iran Foreign Minister Manouchehr Mottaki said on Sunday that the OPEC nation's first nuclear power plant will start operating in mid-2008, two days after the country received a second delivery of nuclear fuel from Russia.

Iran's nuclear standoff with the West, which accuses Tehran of seeking nuclear weapons, has been a major factor in oil's climb to record heights this year.

Adding support to dollar-denominated commodities, the dollar fell versus a basket of major currencies on expectations the Federal Reserve will have to lower interest rates further to stave off a recession.

The U.S. dollar is on track to have its weakest year in four years.

Oil's Climb

Oil's 57 percent gain from the start of the year marks the biggest annual rise for a front-month contract since 1999, when prices more than doubled from a $10-a-barrel low.

The price of oil has quadrupled in four years, driven by surging demand from China and other developing economies alongside OPEC production cuts, a weak dollar, and rising geopolitical turmoil.

Energy analysts expect oil prices to average $77.62 a barrel in 2008, up from about $72.30 a barrel this year, according to a Reuters poll.

Last January, experts polled by Reuters undershot the 2007 oil price by nearly $10 a barrel, with a consensus forecast calling for an average $63.23.

Reporting by Matthew Robinson and Richard Valdmanis, additional reporting by Randy Fabi in London, Fayen Wong in Sydney, editing by Jim Marshall

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