Oil prices hit a 26-month high over $92 a barrel on Friday, closing the year up 15 percent on expectations that the economic recovery will drive demand growth next year and send prices into triple digits.
Strong growth from Asia, especially China, and a rebound in demand from recovering economies elsewhere fueled a four-month rally that knocked crude over the $70-$80 range it held for much of the year.
U.S. crude oil futures surged to a 2010 high on Friday, settling up $1.54 a barrel at $91.38 a barrel, after touching $92.06, the highest level since October 7, 2008. The settlement marked the largest end-year price since 2007.
London Brent gained $1.66 to settle at $94.75 a barrel, its highest end-December settlement since 2007 and up nearly 22 percent on the year.
Global output jumped 2.2 million barrels per day (bpd), according to a Reuters poll, the biggest increase since 2004, and another healthy 1.5 million bpd gain is forecast for next year.
While many experts say oil could break $100 a barrel in the new year, they don't expect a surge to levels near $150 seen in 2008, when crude first broke into triple digits.
The Organization of the Petroleum Exporting Countries would step in to cool off markets if they headed into territory that could endanger the global economic recovery, analysts
At some point, I would expect OPEC to increase production, whether through an extra cargo here or there to cash in on high prices or whether by a more concerted effort to calm people down, said Tim Evans, analyst for Citi Futures Perspective.
Recent gains in the dollar could also help cap oil's momentum by increasing the cost of dollar-denominated currencies for holders of other currencies.
U.S. crude averaged $79.61 a barrel for the year, second only to 2008's record $99.75. Crude shot to a high of $147 a barrel in July of that year, before the global recession hit demand and sent prices below $33.
Cold weather in the United States and Europe and OPEC's decision to keep production levels steady earlier this month have added to bullish sentiment this month. Analysts are watching to see how much of the recent rally has been caused by seasonal weather demand and how much has been driven by more structural consumption
Speculators betting the economic recovery will boost demand have poured into oil markets, with net long positions held by money managers in U.S. oil futures hitting fresh records in December.
U.S. crude rallied back from early losses on Friday in light holiday trade of about 275,000 contracts -- about half the level seen over the past 30 days -- bouncing off lows near $89 a barrel.
We're seeing exaggerated price swings because of low volume of trade but there is technical support around $89 a barrel and the rally will continue to march into next year, said Gene McGillian, analyst for Tradition Energy in Stamford, Connecticut.
(Additional reporting by Jeffrey Kerr in New York, Randi Fabi in Singapore and Dmitry Zhdannikov in London; Writing by Matthew Robinson; Editing by Lisa Shumaker)