Oil hit a four-week high above $78 on Monday in thin trading, extending gains into a fourth day, buoyed by signs of an economic recovery in the United States and large declines in US crude inventories.

Crude for February delivery rose 54 cents to $78.59 a barrel by 0303 GMT, after touching a high of $78.61 earlier, the highest since the $79.04 marked on December 1 Trading in crude, which settled up $1.38 on Thursday, was closed on Friday for Christmas Day.

London Brent crude was up 68 cents at $76.99.

Oil has risen some 13 per cent from a 2-1/2-month low below $70 a barrel two weeks ago, after government data showed large consecutive declines in US crude and distillate inventories amid a colder winter.

The latest National Weather Service six to 10-day outlook issued on Monday gave below-normal readings for the US Northeast, the biggest heating oil market in the world.

Tomokazu Amano, an analyst at Mitsubishi Corp Futures & Securities in Tokyo, said that last week's data showing a large draw down in US crude inventories amid signs of economic recovery was providing support.

'Although there is a technical strength, the market is also cautious because last week's gains occurred amid thin trading,' he said. 'The market is getting support as a cold wave in the US Northeast is projected to boost demand.'

The dollar rose against the yen and held near a recent high on the euro on Monday, helped by demand from Japanese corporates before the year-end, with eyes on US data and Treasury auctions to see if it can maintain the rally.

Some Asian markets were closed on Monday, but Japan's Nikkei average rose to its highest in four months as exporters climbed helped by stable currency moves.

Wall Street is seen likely to make a strong showing in the final week of 2009 as bulls gear up to toast the first annual advance for US stocks in two years on hopes of more economic stability in 2010.

Oil prices are stabilising and could even rise 'reasonably', Saudi Arabia's King Abdullah was quoted as saying by a Kuwaiti newspaper.

The top Opec oil exporter sees a fair oil price at between $75 and $80 per barrel, King Abdullah told the daily al-Seyassah.

Russia has scrapped January oil exports via Ukrainian ports and also said it fears Ukraine will have problems paying for its gas, a sign of a possible repeat of New Year gas rows which have in the past led to supply cuts in Europe. – Reuters