World oil prices rallied on Friday to conclude a record-breaking year on a high with crude futures posting astonishing gains of more than 40 percent over last year, dealers said.
New York's main contract, light sweet crude for delivery in February, gained US$0.72 to close out the year at US$61.04 a barrel.
In London, the price of Brent North Sea crude for February delivery advanced US$0.91 to end at US$58.98 a barrel.
Trade was volatile because of light volumes heading into a long weekend for the New Year break, but brokers said the late rally reflected strong sustained demand for crude futures from speculators.
"Of course 2005 was an incredible year for energy," Alaron Trading analyst Phil Flynn said.
"The bulls came out of the woodwork. For the first time people realized that high energy prices were not always a negative on the economy but in fact could be used as a barometer of the economy's health," he said.
The robust economic expansion of the US and China, the world's two biggest energy consumers, has been one fundamental factor driving up oil prices last year.
But just as important to the sustained rally has been speculative funds betting on ever-rising prices, analysts say.
Crude futures hit historic highs in late August following the devastation wrought by Hurricane Katrina on US Gulf Coast energy installations, striking US$70.85 a barrel in New York and US$68.89 in London.
That marked a 70 percent jump between January and August, but prices have since pulled back owing largely to mild weather across the northern hemisphere in the run-up to winter.
"With the warmer-than-expected temperatures in the US northeast the demand for heating oil is set to ease," placing less pressure on prices, Sucden analysts said.
The northeast region accounts for some 80 percent of total energy demand in the US.
Crude futures had rallied on Thursday after the release of the US Department of Energy weekly inventories report showed an unexpected decline in distillate products, including heating oil, and gasoline.
The Department of Energy said that US stocks of distillates, including heating fuel and diesel, fell 900,000 barrels to 126.8 million barrels in the week to Dec. 23. That was more than the forecast decline of 788,000 barrels.
Gasoline inventories fell 1.2 million barrels to 202.9 million, much more than the fall of 267,000 barrels predicted by analysts.
Iranian Oil Minister Kazem Vaziri-Hamaneh shook the market Wednesday by calling for OPEC to cut its output ceiling by one million barrels per day at its next meeting on Jan. 31.
Iran is the second-biggest crude producer within OPEC, whose official output ceiling currently stands at 28 million barrels per day.
Fimat analysts Mike Fitzpatrick and John Kilduff said declarations by OPEC were becoming less of a driving force to oil prices, given the intense demand from "hot money" speculators.
"This is what has been driving the market all year: too many dollars chasing too few futures contracts," they said in a research note.
But heading into this year, they said, the oil market is overdue a reality check.
"Currently, there is adequate supply to contend with what remains of winter, particularly if mild weather persists," Fitzpatrick and Kilduff wrote.
"OPEC can say what they want about production quotas, but with prices this high there is little economic justification for compliance. Either economic contraction or overproduction will inevitably crash the party!" the wrote.