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Oil traded near the highest settlement in two weeks amid speculation the U.S. economy will continue to recover, bolstering demand for raw materials in the world’s biggest crude consumer.

Futures were little changed after gaining 6.6 percent last week, the most since the five days ending Oct. 28. Reports today may show U.S. consumer confidence improved to a five-month high and home prices in 20 cities declined at a slower pace. Financial markets from Hong Kong to the U.K. and the U.S. were closed for holidays yesterday.

“Signs of a bettering U.S. economy” are boosting prices, said Johannes Benigni, chairman of JBC Energy GmbH in Vienna. “The geopolitical risk premium may also have been a supportive factor, with Iran’s announcement last week that it would conduct a military exercise in the Strait of Hormuz.”

Crude oil for February delivery was at $99.93 a barrel, 25 cents higher than the Dec. 23 settlement, in electronic trading on the New York Mercantile Exchange at 1:01 a.m. London time. Prices settled at $99.68 on Dec. 23, the highest closing level since Dec. 13. Futures have climbed 9.4 percent this year after increasing 15 percent in 2010.

Brent oil for February settlement traded 20 cents higher at $108.16 a barrel on the London-based ICE Futures Europe exchange. The European contract’s premium to Nymex crude was $8.24, compared with $8.28 a barrel Dec. 23, the smallest differential based on closing prices since March 8.

Oil Traders Flee
Large traders have pulled out of the oil market in recent weeks, cutting bets to a four-year low as crude climbed above $100 a barrel on rising tension with Iran, then fell on concern over the European economy.

Outstanding contracts among the biggest players in the futures market, including swaps dealers, hedge funds, producers and commercial users, fell by 4.9 percent to 2,207,528 contracts, the lowest since May 2007, in the seven days ended Dec. 20, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Dec. 23.

In London, hedge-funds and other money managers reduced bullish bets on Brent crude by 11,121 contracts in the week ended Dec. 20, according to data from ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 68,812 lots, the London-based exchange said today in its weekly Commitment of Traders report

Saudi Arabia, the world’s largest oil exporter, needs $74 a barrel for its crude exports next year to balance its budget, according to a report from Jadwa Investment Co., a diversified investment business based in Riyadh. That means the kingdom needs prices of about $70 a barrel for West Texas Intermediate and $78 a barrel for Brent, Jadwa said.

Oil rose as high as $101.25 on Dec. 13 after Iran announced plans for military exercises in the Strait of Hormuz, a critical waterway for crude shipments, as the U.S. and its allies threatened to increase sanctions over the Persian Gulf country’s nuclear program. Futures plunged as low as $92.52 three days later on speculation that European economic growth may slow, undermining demand.

[Nafheense]

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