NEW YORK (Reuters) - U.S. oil prices edged up a to 26-month high near $90 a barrel in choppy trading on Monday as cold weather in Europe and expectations that strengthening economic recovery will boost demand offset the concerns about the euro zone debt problems that lifted the dollar.
Oil demand expectations also were supported by U.S. Federal Reserve Chairman Ben Bernanke’s remarks on CBS-TV’s “60 minutes” that U.S. monetary policymakers might increase the $600 billion in asset purchases announced at the last Fed meeting to keep economic recovery intact.
The view that stronger economic recovery will accelerate and push oil prices higher as demand picks up, along with cold weather boosting heating fuel use, helped offset the effect of a stronger dollar and worries about euro zone economies.
U.S. crude for January delivery rose 19 cents to settle at $89.38 a barrel, the fourth straight firmer close and the highest since crude settled at $90.06 on October 7, 2008.
Monday’s early $89.76 intraday peak was the highest front-month price since October 9, 2008.
Total U.S. crude trading volume was above 670,700 late on Monday, 7.6 percent above the 30-day average.
ICE Brent crude for rose only 3 cents to settle at $91.45 a barrel.
“Although the euro came under some downside pressure, (U.S.) futures still appeared supported by a strong Brent market that, in turn, is reacting to cold European temperatures and a firm gas oil trade,” Jim Ritterbusch, president at Ritterbusch & Associates, said in a note.
The euro snapped a three-day advance versus the dollar and selling pressure was expected to continue as doubts increased about European officials’ ability to find a common approach to ease the region’s debt crisis. The dollar index .DXY against a basket of currencies also strengthened.
A weak dollar can lift dollar-denominated oil prices because it lowers the value of dollars paid to producers and boosts the buying power of consumers using other currencies.
Cold weather is expected to continue to tighten energy supply margins in Europe amid below-average temperatures. The boosted demand for heating fuel helped push gas oil futures to a 26-month high on Monday.
U.S. heating demand was expected to be 16.3 percent above normal for the week to December 11, according to the U.S. National Weather Service. Heating oil demand was forecast at 16.1 percent above normal for the same period.
The wintry weather allowed Brent crude to move briefly into backwardation -- where the front-month price is more than next month’s contract -- and many analysts expect the trend to strengthen.
Forward futures contracts for U.S. light crude moved into backwardation from mid-2011, although very prompt contracts stayed at small discounts.
A smaller discount or a price premium for front-month crude versus the near-month, could eventually make it unprofitable to store crude and help bring down bulging stockpiles.
U.S. crude inventories were at nearly 360 million barrels in the week to November 26, according to the government, 19.8 million barrels above the year-ago period.
“This backwardation, which was rarely evident in the past few years, is likely to bring more buyers into the arena,” analysts at Commerzbank said in a report.
At least five banks raised their mid- or long-term price forecasts last week, citing factors such as rising demand in emerging markets, faster global economic growth and OPEC’s reluctance to boost output.
The Organization of the Petroleum Exporting Countries meets on December 11. Rather than raise output to curb prices, OPEC is likely to roll over existing policy, ministers have said.
U.S. crude stockpiles are expected to have fallen last week as refiners limited imports, according to a preliminary Reuters survey of analysts on Monday.
An inventory report from the American Petroleum Institute will be released late on Tuesday, with a report from the U.S. Energy Information Administration due on Wednesday morning.
Additional reporting by Gene Ramos in New York, Alex Lawler in London and Jennifer Tan in Singapore; Editing by Marguerita Choy