NEW YORK - Oil rose more than 2 percent to touch two-month highs over $81 a barrel on Monday as cold weather battered the United States and other big consumer regions, driving up demand for heating fuel.
Frigid temperatures are expected to drive up U.S. heating demand to 21 percent above normal, with consumption in the U.S. Northeast, the largest heating oil market, seen up 11 percent above average levels.
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 up transport across north China, South Korea and India.
Heating oil futures led the U.S. oil complex higher, with U.S. crude for February delivery trading up $1.92 to $81.28 a barrel by 12:13 p.m. EST (1713 GMT), after earlier touching $81.68, the highest level since October 23. Brent crude climbed $1.93 to $79.86 a barrel.
Cold temperatures in the U.S., part of a global cold front, and a weak dollar are driving oil prices higher, said Phil Flynn, PFGBest Research in Chicago.
The dollar slid on Monday as investors locked in recent gains ahead of U.S. economic data this week that could firmly 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 by 78 percent in 2009.
U.S. 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 it 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.
(Reporting by Matthew Robinson, Robert Gibbons and Gene Ramos; Alex Lawler in London; Fayen Wong in Perth; Editing by Lisa Shumaker)