The world seems to have a renewed thirst for oil after many regions cut back during the financial crisis that started in the fall of 2008.
Prices have been buoyed by improving economies in Asia and emerging nations. Now, inventories are dropping in the United States and Europe. New forecasts from OPEC and others are calling for stronger demand this year and next.
As a result, oil is at a two-year high above $88 per barrel after gaining more than 7 percent over the past two weeks. Oil has also been boosted by a falling dollar, which makes investments in commodities more attractive for holders of stronger foreign currencies.
The advance in oil slowed a bit Thursday. Benchmark oil for December delivery was unchanged at $87.81 a barrel Thursday on the New York Mercantile Exchange. Futures prices for heating oil, which serves as a proxy for jet fuel, and gasoline fell as well.
Traders will be monitoring the holiday season to see if Americans are willing to spend more on gifts and other discretionary items as well as other upcoming economic reports. If the season fails to meet expectations, it could pressure prices, Tradition Energy analyst Gene McGillian said.
Motorists in the U.S., the biggest consumer of gasoline, are paying more at the pump than they did on average during the peak driving season. Regular unleaded gasoline averaged $2.864 a gallon Wednesday, according to AAA, Wright Express and Oil Price Information Service. That's about 6 cents more than a week ago and 21 cents more than a year ago.
Oil prices have risen about 11 percent this year. While crude supplies have increased by 11.5 percent so far, the trend has reversed in recent weeks. Many analysts believe oil will top $90 a barrel by year end. If consumers have to pay more for fuel, that could hurt U.S. economic growth, McGillian said.
The Organization of Petroleum Exporting Countries and the U.S. Energy Information Administration just this week raised their forecast for growth in oil demand in 2010. The International Energy Agency may do likewise Friday.
In other Nymex trading in December contracts, heating oil fell $1.53 to $2.4266 a gallon and gasoline slipped less than a penny to $2.2357 a gallon. Natural gas was down 11.9 cents at $3.927 per 1,000 cubic feet.
In London, Brent crude slipped 15 cents to $88.81 a barrel on the ICE Futures exchange.
AP Business Writer Kelvin Chan in London contributed to this report.