* Firm dollar limits oil's climb
* Further draws seen in U.S. crude stocks support
* Cold weather in U.S. should lift heating demand
(Updates prices, adds Algerian minister comment)
By Judy Hua
SINGAPORE, Dec 29 (Reuters) - Oil held steady below $79 on
Tuesday, after hitting a five-week high a day earlier, as the
firm dollar offset colder U.S. weather and expectations of a
further drawdown in crude inventories.
The dollar held firm near a two-month high against the yen
as investors looked ahead to the greenback's direction in the
new year after a rally this month. []
U.S. crude for February delivery <CLc1> fell 5 cents to
$78.72 a barrel by 0726 GMT in thin pre-holiday trade.
It settled up 72 cents on Monday, after touching $79.12,
the highest since Nov. 23. Heating oil futures led gains in the
oil complex as forecasters called for colder weather in the
United States, the world's largest energy consumer.
London Brent crude for February <LCOc1> rose 14 cents to
$77.46.
"People are expecting a drop in U.S. inventories that has
sustained oil prices at the moment and liquidity is quite low,"
said Serene Lim, Energy and Commodity Strategist at ANZ Bank.
U.S. crude inventories fell 1.5 million barrels last week
as refiners drew down stocks for year-end tax issues and
imports declined, a Reuters poll of analysts showed, for what
would be the fourth straight week of draws. []
Last week, EIA data showed crude stocks fell a hefty 4.9
million barrels, and by more than 3 million barrels in the
previous two government report.
SEVERE WINTER BITES
Distillate stocks, which include heating oil and diesel,
were expected to drop 1.9 million barrels as colder
temperatures swept the nation.
U.S. natural gas futures ended with strong gains on Monday,
after rallying late to a near one-year high due to the harsh
U.S. weather this week that should boost heating demand despite
typically slow industrial and commercial loads during a
holiday-shortened week. []
Temperatures in the U.S. Northeast -- the world's largest
heating oil market -- were expected to average above normal on
Monday before dipping to below normal through Friday, private
forecaster DTN Meteorlogix said. []
Oil's rally of more than 12 percent over two weeks was
limited on Tuesday by the dollar, which has risen broadly in
recent weeks on optimism the U.S. economy may be on track for
improved growth in 2010.
The dollar index versus a currency basket <.DXY> hovered
under this week's three-month high, as trading activity wound
down before Christmas. Gold also rose while Asian stocks
rallied.
Oil has often eased this year when the dollar firms, making
crude more costly for holders of other currencies.
A week after the latest OPEC meeting, the United Arab
Emirates, among the most compliant to OPEC quota limits, said
it will supply less of its three main lighter crude grades to
Asia for February, but will ship more of the heavy Upper Zakum
grade. []
The energy and mines minister of Algeria, another OPEC
member, said oil prices are likely to hover between $70 and $80
a barrel next year if the world economy strengthens, echoing
Saudi Arabian Oil Minister Ali al-Naimi, who has said the
$70-$80 range is comfortable for producers, consumers and
investors. []
(Editing by Michael Urquhart)
