Oil edged up to a 26-month high on speculation the US may extend stimulus measures, bolstering fuel demand in the world's largest oil consuming country, and on cold-weather forecasts for the US and Europe. Crude extended its longest advance in four weeks after Federal Reserve Chairman Ben S. Bernanke said the Fed may expand bond purchases beyond the $600 billion announced last month. Winter weather in parts of the US and Europe boosted demand for heating fuel.

"There's been enough supportive economic news as of late to support the move higher, and the cold weather is helping," said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc in New York. "The market continues to have a firm tone." Crude for January delivery rose 19 cents to settle at $89.38 a barrel on the New York Mercantile Exchange, the highest level since October 7, 2008. Prices have climbed 13 percent this year.

US fuel consumption decreased 1.8 percent in the week ended November 26 to 18.5 million barrels a day, the lowest level since the seven days ended October 15, an Energy Department report showed last week. It was the third weekly decline. Oil prices will average $86 a barrel next year and $100 in 2012 as demand increases, said Katherine Spector, a commodities strategist with CIBC World Markets in New York. Oil has averaged $78.85 so far this year on the Nymex.

Copyright Reuters, 2010