Brent crude oil was steady near $108 a barrel on Friday as Iran's threats to halt flows through a vital oil channel offset a surprise jump in U.S. oil stocks, leaving oil ontrack to post a 14 percent annual gain.
The benchmark is poised to close the year at a record-high average of around $111 a barrel, surpassing the previous annual peak of just below $100 reached in 2008. With the exception of 2008, oil prices have closed higher every year for the last decade.
Brent fell by 11 cents to $107.90 a barrel by 1037 GMT in the final trading day of 2011, although analysts said losses were curbed by simmering tensions between Iran and the United States over a threatened closure of a key oil channel.
U.S. crude was up 25 cents at $99.90 a barrel by the same time.
Iran has helped to underpin oil when other commodity prices have come off, said Andrey Kryuchenkov, analyst at VTB Capital. Geopolitical jitters and supply side uncertainty are likely to increase volatility while tensions in the Middle East could still add to the risk premium.
A senior Iranian Revolutionary Guards commander said on Thursday the United States was not in a position to tell Tehran what to do in the Strait of Hormuz, state television reported, ratcheting up tensions over a possible halt of oil flows.
Iran's repeated threats this week to halt oil flow through the Strait of Hormuz has helped keep intact a risk premium on prices that first emerged this year with the Libyan uprising, boosting Brent prices to record levels above U.S. crude in October.
The Middle East premium from Libya has not yet completely eroded as a result of what is happening in Iran, said Jonathan Barratt, chief executive of Barrattsbulletin.com and ex-managing director of Commodity Broking Services.
The tensions helped overshadow signs of comfortable stocks in the world's top oil consumer in the middle of the Northern Hemisphere winter. U.S. crude oil inventories and distillate stocks both climbed unexpectedly last week, according to weekly inventory data from the U.S. Energy Information Administration released on Thursday.
GRAPHIC - Asset returns in 2011 http://graphics.thomsonreuters.com/11/07/GLB_ASSETRTN_SB.html
Analysts polled by Reuters expect slightly lower oil prices of $105 a barrel in 2012 as forecasters like the West's oil watchdog the International Energy Administration expect global demand to decelerate in 2012 due partly to the impact of the euro zone debt crisis.
Chinese factory activity shrunk in December as demand slackened, indicating a possible slow-down in growth in the economies responsible for the lion's share of global oil demand.
Another factor to watch will be the pace of economic recovery in the United States.
New U.S. claims for jobless benefits rose last week but the underlying trend pointed to an improving labour market, while regional factory data showed the world's largest economy gaining momentum as the year ended.
When traders get back to the market, they will be focused on the recovery in the United States. As the number one consumer, that may override the demand destruction we are seeing in India, China and Japan, Barratt said.
(Reporting by Emma Farge and Randy Fabi in Singapore, editing by William Hardy)