Crude-oil futures surged 14% Wednesday as traders took new positions ahead of the new year on speculation that oil prices might have bottomed and after Russia threatened to cut natural gas supplies to Ukraine, a move that could impact much of Europe. Despite the late rally, crude futures ended the year with their biggest loss ever. Crude for February delivery rose $5.57 to end at $44.60 a barrel on the New York Mercantile Exchange. The contract dropped as low as $36.94 earlier in the session. "We are seeing some year-end short covering after this year's record slump" in oil prices, said Darin Newsom, a senior analyst at DTN. At the same time, energy markets were rattled by Russia's threat to halt the flow of natural gas after Jan. 1 to Ukraine after Ukrainian officials refused to pay Gazprom's demanded price. Russia, which provides about 25% of Western Europe's gas via pipelines that cross Ukraine, briefly cut supplies during a similar dispute in 2006. While Russia has vowed to honor deliveries to other customers, any drop in pressure in the system can cut the volume of gas reaching key customers in Germany, Italy and other nations. With little in the way of a backup fuels to draw on in the depth of winter, heating oil is seen as an alternative to Russian gas. But tensions raised by the dispute, which carry deep East-West political overtones, are also central to traders' bullish reaction, which in turn was magnified by the year-end session's low volume. Despite Wednesday's rally, oil ended the year down 54%, the biggest yearly loss since oil futures started trading in New York in 1983. After surging more than 50% in the first half of the year to reach a record high above $147 a barrel in July, crude has tumbled more than $100, or 70%. "With 2009 looking set to be a terrible year for the world economy, it seems likely that oil prices will remain under considerable pressure," said Michael Davies, energy analyst at Sucden Financial Research. Analysts' 2009 forecasts for average crude futures mostly range from $40 to $70 a barrel, depending on the timing and the extent of any revival in global demand. See related story. Energy traders also digested the latest data on U.S. petroleum inventories. U.S. crude stockpiles rose 500,000 barrels to 318.7 million in the week ended Dec. 26, the Energy Information Administration reported Wednesday. Gasoline and distillate inventories also rose in the latest week, by 800,000 barrels and 700,000 barrels, respectively. Analysts surveyed by energy information provider Platts had been looking for a drawdown of 1.75 million barrels in crude stockpiles for the week. They also had expected larger increases, of 1.7 million barrels and 1.3 million barrels, for gasoline inventories and distillate stocks. Meanwhile, crude inventories at Cushing, Okla., the delivery point for Nymex-traded crude contracts, fell by 600,000 barrels in the week ended Dec. 26. Cushing inventories hit 28.7 million barrels in the week ended Dec. 19, the highest since at least April 2004, when the government started collecting Cushing data. Total petroleum-products supplies, including gasoline and heating oil, averaged 19.9 million barrels a day over the last four-week period, down by 3.7% compared to the similar period last year, the EIA reported. U.S. refineries ran at 82.5% of their operable capacity last week, down from 84.7% a week ago. Meanwhile, the EIA reported the latest data on natural gas in storage on Wednesday, a day early because of the New Year's holiday. U.S. natural gas inventories fell 143 billion cubic feet to 2,877 billion cubic feet in the week ended Dec. 26. On the Nymex, natural gas for February delivery fell 4% to end at $5.622 per million British thermal units. Natural gas lost 25% this year. February reformulated gasoline gained 14% to $1.062 a gallon, while February heating oil gained 10% to $1.4421 a gallon.

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