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Oil rises to 27-month high on strong outlook for US economy

Crude oil rose to a 27-month high on speculation the US will sustain an economic recovery this year, bolstering fuel demand in the world's biggest oil-consuming country.

Futures advanced as much as 1.3pc after the Institute for Supply Management's US factory index climbed to 57 in December, the fastest pace in seven months. Fuel demand increased to the highest since May 2008 in the week ended December 24, Energy Department figures showed last week.

"Oil looks like one of the best investments of 2011," said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. "Investors want to get in fast and get in early. Any way you look at it oil is going to be in demand this year."

Crude oil for February delivery rose 95 cents, or 1pc, to $92.33 (€66.03) a barrel on the New York Mercantile Exchange. The contract reached $92.58, the highest price since October 2008. Futures rose 15pc in 2010.

Brent crude for February settlement increased $1.10, or 1.2pc, to $95.85 a barrel on the London-based ICE Futures Europe exchange. The contract touched $96.17, the highest level since October 2, 2008.


US construction spending rose in November for a third month, helped by federal government projects.

"Optimism is the key word for the new year," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "Oil is going to follow whatever the S&P 500 is doing."

The Standard & Poor's 500 Index advanced 1.4pc to 1,274.67 in New York and the Dow Jones Industrial Average climbed 1.1pc to 11,699.70.

European manufacturing grew more than initially estimated in December, powered by Germany's export-led expansion. A gauge of factory activity in the euro area rose to 57.1 from 55.3 the previous month. That's higher than the 56.8 reported earlier for December. Readings above 50 indicate expansion.

Oil prices will average $93 a barrel this year and are "very likely" to climb above $100, Jason Schenker, president of Prestige Economics in Austin, Texas, said. (Bloomberg)

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