The price of oil hit a two-year high as a stock market rally in the US stoked optimism that fuel demand would improve as freezing winter weather uses up stockpiles.
The US benchmark West Texas Intermediate crude touched US$91.13 a barrel in New York yesterday afternoon, its highest level since October 2008, while Europe's Brent crude climbed yesterday to $93.91.
The increases capped a five-day rally that is benefiting Gulf oil states. Some emerging oil exporters have also been rewarded.
The tiny state of East Timor reported on Wednesday that its petroleum income climbed 38 per cent this year to a record $914 million (Dh3.35 billion) as it increased output from oil and gas deposits in the Timor Sea. The nation of 1.1 million people is among the poorest in the world and has relied heavily on foreign aid since voting for independence from Indonesia in 1999.
Iraq, which has launched a major push to rehabilitate some of the world's biggest oilfields, said its output had rebounded to the post-war high of 2.5 million barrels per day (bpd) reached a year ago, before slipping for most of this year due to operational setbacks.
"Production has increased after the success of Iraqi workers and international oil companies in shortening the period of achieving a 10 per cent rise from the Rumaila and Zubair oilfields in less than a year," said Abdul Kareem Luaibi, the country's newly appointed oil minister.
One of the five founding members of OPEC 50 years ago, when the organisation was created at a meeting in Baghdad, Iraq has been struggling to push its crude production capacity back towards the country's pre-war peak output of 3.7 million bpd reached in 1979, just before it declared war with Iran.
The former Iraqi oil minister Hussain al Shahristani, who has been promoted to deputy prime minister for energy in the new Iraqi government sworn in on Wednesday, earlier predicted that the nation's output capacity could reach as much as 12 million bpd by 2017, rivalling that of Saudi Arabia.
That was after Baghdad awarded several 20-year contracts to consortiums of international oil companies to boost output from the country's largest oilfields. The contracts stipulated that a 10 per cent increase in output capacity from each field must be achieved within three years of signing - targets that BP and China National Petroleum Corporation have already hit at Rumaila, the biggest Iraqi oilfield, as has a group led by Italy's Eni at the supergiant Zubair field.
Despite this, the International Energy Agency and some other analysts forecast global oil demand rising faster than supply next year.
"The market is at its tightest in well over two years," Barclays Capital said in a report. "At the start of the year, even the most optimistic view of the oil market would not have expected such a barrage of upside demand surprises and such a quick draw down of inventories."
Michael Haigh, the global head of commodities research at Standard Chartered Bank in Singapore, said urbanisation and population growth in the large emerging economies of China and India would spur global oil demand to 112 million bpd by 2030 from 89 million bpd at present. "The marginal barrel is going to come from more expensive areas, so that explains why we get the increase in prices," he said on Bloomberg Television.
Sander Capital Advisors, however, pointed to stock markets to explain crude's latest rally.
"The price of crude is highly connected to the direction of the equities markets and confidence in a global recovery," the company, based in Seattle, said in a report. "When equities go up, it tends to mean confidence is up and thus consumption is up."
US stocks edged higher on Wednesday, extending four days of gains that drove the S&P 500 index to its highest level since the US investment bank Lehman Brothers collapsed in September 2008. They eased back yesterday in the last trading session before Christmas, with crude following suit in thin early trading on the New York Mercantile Exchange.
The S&P index has risen 6 per cent this month, led by financial stocks such as Bank of America and JP Morgan Chase.
"They're just trying to close out the year well," Wayne Kaufman, the chief market analyst at John Thomas Financial in New York, told Reuters. "A lot of the bearish patterns or indicators over the last few weeks have failed, and a failed bearish setup is very bullish."