Oil hovered near the highest price levels in more than two years on accelerating manufacturing activity in developed economies and expectations that U.S. crude inventories will continue to drain.

U.S. crude for February rose 35 cents to $91.90 a barrel at 1050 GMT (5:50 a.m. ET) after hitting a 27-month peak of $92.58, the highest intraday price since early October 2008.

ICE Brent was up 64 cents at $95.47, having topped $96 on Monday for the first time since 2008.

Oil sentiment has turned decidedly bullish, partly driven by unusually cold weather, but more due to an increasingly optimistic consensus view on 2011 economic performance, especially for the U.S., JPMorgan analysts led by Lawrence Eagles said.

Prices rallied on Monday on accelerating manufacturing activity in industrialized economies and icy weather.

Manufacturing in the United States and Europe accelerated in December, while growth in China and India slowed to more sustainable levels in another boost for the global economic outlook.

On Tuesday, a report showed that British manufacturing activity expanded at its fastest pace in over 16 years in December, above expectations.

It appears easily possible that the magical three-digit threshold ($100 per barrel) falls in the coming weeks, analysts at JBC Energy broker said on Tuesday.

The wildcard of natural and man-made disasters steadily adds twists to commodity markets, it added, citing an earthquake in Chile and floods in Columbia and Australia as contributing to a global commodities rally.


Crude oil inventories in the United States, the world's top consumer, probably fell for the fifth-straight time last week, down by 1.7 million barrels, a Reuters poll showed, while stockpiles of gasoline and distillates probably rose.

Refiners continued to use up more of their stored crude supplies while holding off on imports to lower their year-end taxes, analysts said.

Industry group American Petroleum Institute (API) will release its inventory report on Tuesday at 2130 GMT, while the U.S. Energy Information Administration will follow with government statistics at 1530 GMT on Wednesday.

Increasing demand for heating oil is helping to reduce the inventory overhang, said Credit Suisse analysts including

Stefan Graber.

However, this is likely to be temporary as heating oil demand usually peaks around mid-January. While the short-term technical trend and momentum indicators remain positive, we think that ample OPEC spare production capacity is likely to cap the upside.

U.S. crude futures remain in a stubborn contango, a price structure where prompt oil is cheaper than barrels for later delivery. This market condition encourages storage.

The spread between front-month February and March crude futures had the premium for March crude at almost $1 on Tuesday.

In other markets, world stocks as measured by MSCI <.MIWD00000PUS> were up nearly half a percent on the day, with the emerging market sub-index <.MSCIEF> gaining 0.4 percent lifted by the optimism about the state of the world economy.

The next big test for the U.S. economy comes on Friday when the government will publish its December jobs report.

(Editing by Alison Birrane)