Oil prices dipped this morning after Russia and Ukraine settled a natural gas supply dispute, but prices retained most of the past week's sharp gains amid a fresh infusion of investor funds.
Deepening light earlier losses, US February light crude slid 48 cents to $62.66 a barrel after Gazprom said it had reached a gas supply deal with Ukraine, seeming to end a row that briefly disrupted exports to Europe.
European gas oil futures, which shot 5 per cent higher on Tuesday amid fears that the temporary cut in Russian gas supplies could boost demand for other heating fuels, slid 1.5 per cent to $534.50 a tonne.
London Brent crude traded at $60.83, down 52 cents.
Russia cut natural gas exports through Ukraine on January 1 after its ex-Soviet neighbour refused to pay a four-fold price increase, but it restored flows a day later when European nations complained that their supplies had also been curtailed.
Gazprom chief executive Alexei Miller today said the firm had agreed to sell natural gas to Ukraine for five years from January 1, a move that may set at ease European consumers who depend on Russia for a quarter of their gas.
However, this morning's dip barely dented a rally that has added nearly $5 to prices over the past week, as fresh investment and speculative funds flow into the market.
Oil averaged $56.70 a barrel last year, about 37 per cent more than in 2004, and analysts say the lack of spare capacity and the existence of geo-political uncertainties - most recently the Russia-Ukraine gas row - could keep the rally going.
The economy in the United States - the world's biggest fuel consumer - is expected to expand by 3.4 per cent next year, a little less than this year's growth. China, the second biggest oil user, is expected to grow 8 to 9 per cent.
In the short-term traders will be looking toward US oil inventory data for indications of whether refiners are able to keep up fuel supplies during the winter.
The data will be released tomorrow, a day later than usual due to the New Year's holiday.