Oil Closes Flat at $96 in Thin Trade

U.S. crude futures finished a volatile session slightly lower, slipping from an earlier high in thin, pre-holiday trading as traders squared books at year's end and January products futures contracts approached expiration.

On the New York Mercantile Exchange, February crude

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[US@CL.1  Loading...      ()] last traded in the open-outcry floor session down 10 cents or 0.1 percent at $95.90 a barrel, trading from $94.73 to $96.78.

Earlier in the session, oil fell a dollar as worries of an economic slowdown offset supply concerns and rising geopolitical tensions.

Crude prices are on their way to their biggest annual gain this decade, led by tight consumer-nation inventories.

Over the past week, oil has edged closer to the record $99.29 a barrel struck on Nov. 21 as analysts eyed low stockpiles ahead of winter.

But worries that U.S. economic problems could hit demand in the world's top oil consumer and forecasts for above-average temperatures in January and February are weighing on prices.

"Energy markets will continue to be buffeted by two countervailing forces for the balance of this week, but we would give the edge to the bulls, who should maintain relative control for at least a little while longer,'' said Edward Meir of MF Global.

Dealers were also watching turmoil in nuclear-armed Pakistan after Benazir Bhutto's assassination, and amid Iran's nuclear ambitions and a weak U.S. dollar.

Iran Foreign Minister Manouchehr Mottaki said Sunday that the OPEC nation's first nuclear power plant will start operating in mid-2008, two days after the country received a second delivery of nuclear fuel from Russia.

Iran's nuclear standoff with the West, which accuses Tehran of seeking nuclear weapons, has been a major factor in oil's climb to record heights this year.

Adding support to dollar-denominated commodities, the dollar fell versus a basket of major currencies on expectations the Federal Reserve will have to lower interest rates further to stave off a recession.

The U.S. dollar is on track to have its weakest year in four years.

Oil's Climb

Oil is up about 58 percent from the start of the year, the biggest gain for a front-month contract since 1999 when prices more than doubled from a $10-a-barrel low.

The price of oil has quadrupled in four years, driven by surging demand from China and other developing economies alongside OPEC production cuts, a weak dollar, and rising geopolitical turmoil.

It hit an all-time high of $99.29 on Nov. 21, but has slipped back since on signs of economic weakness in the United States, the world's largest energy consumer, which is being buffeted by a credit crunch.

Energy analysts expect oil prices to average $77.62 a barrel in 2008, up from about $72.30 a barrel this year, according to a Reuters poll.

Last January, experts polled by Reuters undershot their the 2007 oil price by nearly $10 a barrel, with a consensus forecast calling for an average $63.23.