Oil breaks through $81, two-month high

Oil rose more than $2 to settle above $81 a barrel, its highest close in nearly three months as cold weather battered the United States and other big consumer regions and drove up demand for heating fuel.

Heating oil futures led the US oil complex higher as US crude for February delivery settled up $2.15 at $81.51, its highest close since Oct. 9. Brent crude climbed $2.19 to settle at $80.12.

``Cold temperatures in the US, part of a global cold front, and a weak dollar are driving oil prices higher,'' said Phil Flynn of PFGBest Research in Chicago.

Frigid temperatures were expected to boost US heating demand to 21 percent above normal, with consumption in the US Northeast, the largest heating oil market, seen up 11 percent above average levels.

This follows the coldest US December in nine years, which helped boost heating oil prices by nearly 10 percent.

Unusually cold weather in Britain is expected to continue into the second half of January after the coldest December since 1995, said the UK's official weather center. Colder temperatures in Europe were seen gradually spreading from the northeast to southwest during the next few days, boosting energy consumption.

Heavy snows and biting cold also hit parts of Asia on Monday, with unusually harsh winter weather snarling transport across north China, South Korea and India.

The dollar slid as investors locked in recent gains ahead of US economic data this week that could dictate the currency's direction in the coming months.

Over the past year, some investors have sold safe-haven plays such as the dollar and bought oil futures following positive economic data.

Crude markets have been looking to wider economic data for signs of a turnaround that could bolster flagging oil demand. Expectations of a demand rebound helped push up crude prices 78 percent in 2009.

US stocks jumped after data showed a fifth straight month of expansion in the manufacturing sector and semiconductor stocks gained on a brokerage upgrade of Intel.

The Institute for Supply Management said its index of national factory activity rose for a fifth consecutive month and neared a four-year high in December.

Markets were also keeping a close eye on an oil pricing dispute between Russia and Belarus that briefly cut off supplies to the Eastern European nation. Russia on Monday said had resumed supplies to refineries in Belarus, but tensions are still simmering.

Belarus officials earlier on Monday warned they may cut electricity supplies to Russia, ratcheting up tensions in the dispute that broke out on New Year's Eve and raised the specter of another winter of supply disruptions for European Union customers.

Positive economic data from China and India added to the bullish sentiment.

China's factories cranked up production in December, while the rate of growth in Indian manufacturing rose for the first time in three months in December, surveys showed.

- Reuters